UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K
               [ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                                     OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: September 30, 1998

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from ______to_____

                         Commission file number 0-18083

                             Williams Controls, Inc.
             (Exact name of registrant as specified in its charter)


               Delaware                                          84-1099587
    -------------------------------                          -------------------
    (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)


         14100 SW 72nd Avenue
           Portland, Oregon                                         97224
---------------------------------------                          ----------
(Address of principal executive office)                          (zip code)



               Registrant's telephone number, including area code:

                                 (503) 684-8600

          Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock ($.01 par value)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                (1) Yes X No____

                                (2) Yes X No____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of November 30, 1998,  18,468,788 shares of Common Stock were outstanding and
the  aggregate  market value of the shares  (based upon the closing price of the
shares on the  NASDAQ  National  Market)  of  Williams  Controls,  Inc.  held by
nonaffiliates was approximately $27,399,000.

                       Documents Incorporated by Reference

Portions  of the  definitive  proxy  statement  for the 1999  Annual  Meeting of
Stockholders  to be filed not later than  January 28, 1999 are  incorporated  by
reference in Part III hereof.

     
<PAGE>



                             Williams Controls, Inc.
                             Index to 1998 Form 10-K



   Part I                                                                Page

      Item 1.   Description of Business                                  2-7
      Item 2.   Properties                                                 8
      Item 3.   Legal Proceedings                                          8
      Item 4.   Submission of Matters to a Vote of Security Holders        8


   Part II
      Item 5.   Market for Registrant's Common Equity and Related 
                   Stockholder Matters                                     9
      Item 6.   Selected Financial Data                                   10
      Item 7.   Management's Discussion and Analysis of Financial 
                   Condition and Results of Operations                 11-16
      Item 8.   Financial Statements and Supplementary Data            17-49
      Item 9.   Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure                    50


   Part III
      Item 10.  Directors and Executive Officers of the Registrant        50
      Item 11.  Executive Compensation                                    50
      Item 12.  Security Ownership of Certain Beneficial Owners 
                   and Management                                         50
      Item 13.  Certain Relationships and Related Transactions            50


   Part IV
      Item 14.  Exhibits, Financial Statement Schedules and
                   Reports on Form 8-K                                    50


   Signatures                                                             51




<PAGE>
                             WILLIAMS CONTROLS, INC.

                                    Form 10-K

                                     Part I


Cautionary Statement: This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, those statements relating to development
of new products, the financial condition of the Company, the ability to increase
distribution  of the Company's  products,  integration of businesses the Company
acquires,  disposition  of any current  business of the Company,  including  its
Automotive    Accessories   and   Agricultural    Equipment   segments.    These
forward-looking  statements are subject to the business and economic risks faced
by the Company.  The Company's actual results could differ materially from those
anticipated  in these  forward-looking  statements  as a result  of the  factors
described above and other factors described elsewhere in this report.

Item 1. Description of Business (Dollars in thousands)
------------------------------------------------------


Williams  Controls,  Inc.,  including its  wholly-owned  subsidiaries,  Williams
Controls Industries, Inc. ("Williams");  Aptek Williams, Inc. ("Aptek"); Premier
Plastic Technologies,  Inc. ("PPT");  Williams Automotive,  Inc.; GeoFocus, Inc.
("GeoFocus");   NESC  Williams,  Inc.  ("NESC");  Williams  Technologies,   Inc.
("Technologies");  Williams  World Trade,  Inc.  ("WWT");  Kenco/Williams,  Inc.
("Kenco");  Techwood Williams, Inc. ("TWI");  Agrotec Williams, Inc. ("Agrotec")
and its 80% owned  subsidiaries  Hardee Williams,  Inc.  ("Hardee") and Waccamaw
Wheel Williams, Inc. ("Waccamaw") is hereinafter referred to as the "Company" or
"Registrant."



General
-------


The Company is a Delaware  corporation  formed in 1988.  The  Company's  primary
business  segment was founded by Norman C.  Williams in 1939 and acquired by the
Company in 1988. The Company's  operating  subsidiaries,  which are all Delaware
corporations  except  GeoFocus,  Inc.  which is a  Florida  corporation,  are as
follows:


Williams  Controls  Industries,   Inc.:  Manufactures  vehicle  components  sold
primarily in the transportation industry.


Aptek  Williams,  Inc.:  Develops and  produces  sensors,  microcircuits,  cable
assemblies  and other  electronic  products for the  telecommunications  and the
transportation  industry,  and conducts  research and development  activities to
develop commercial  applications of sensor related products for the subsidiaries
of the Company.


Premier Plastic  Technologies,  Inc.:  Manufactures  plastic  components for the
automotive industry and manufactures  prototype and production molds using rapid
prototyping processes.


NESC  Williams,  Inc.:  Installs  conversion  kits  to  allow  vehicles  to  use
compressed natural gas and provides natural gas well metering services.


Williams  Automotive,  Inc.:  Markets the Company's  products to the  automotive
industry.


GeoFocus,  Inc.: Develops train tracking and cyber-farming  systems using global
positioning systems ("GPS") and geographical information systems ("GIS").


Williams  Technologies,  Inc.:  Supports  all  subsidiaries  of the  Company  by
providing   research  and   development   and  developing   strategic   business
relationships to promote "technology partnering."

                                       2
<PAGE>

Williams World Trade, Inc.: WWT manages foreign sourcing for all subsidiaries of
the  Company,  affiliates  and third party  customers  through its wholly  owned
subsidiary located in Kuala Lumpur, Malaysia.


Kenco/Williams,  Inc.: Manufactures,  assembles,  packages and distributes truck
and auto accessories for the aftermarket parts industries.  Kenco is reported as
a discontinued operation.


Techwood Williams,  Inc.:  Manufactured and distributed commercial wood chippers
used in landscaping  and farming.  Techwood ceased  manufacturing  operations in
fiscal 1997. Techwood is reported as a discontinued operation.


Agrotec Williams,  Inc.:  Manufactures  spraying  equipment for the professional
lawn  care,  nursery  and pest  control  industries.  Agrotec is  reported  as a
discontinued operation.


Hardee Williams,  Inc.: Manufactures equipment used in farming, highway and park
maintenance. Hardee is reported as a discontinued operation.


Waccamaw Wheel Williams,  Inc.:  Manufactures solid rubber tail wheels and other
rubber  products used on  agricultural  equipment,  from recycled  truck and bus
tires. Waccamaw is reported as a discontinued operation.

As discussed in note 12 to the Notes to Consolidated  Financial Statements,  the
Company's operations are divided into four industry segments.


Vehicle  Components  - The  Company's  transportation  component  product  lines
include  electronic  throttle  control  systems  ("ETC"),   exhaust  brakes  and
pneumatic and hydraulic controls.  These products are used in applications which
include trucks, utility and off-highway equipment, transit buses and underground
mining  machines.  Markets for the Company's  electronic  throttle  controls are
developing in smaller  classes of trucks and diesel powered pick up trucks.  The
Company  believes  that  gasoline  powered  automobiles  and pick up trucks  may
convert  to ETC,  although  such  conversion  requires  engine  redesign  by the
automotive  manufacturers which is presently ongoing. The Company estimates that
it has  over  65%  domestic  market  share of ETC for  Class 7 & 8  trucks.  The
majority of these products are sold directly to original equipment manufacturers
such as Freightliner,  Navistar,  Volvo,  Isuzu, Motor Coach Industries and Blue
Bird   Corporation.   The   Company   also  sells  these   products   through  a
well-established network of independent  distributors.  The major competitors in
one or more product lines include Allied Signal, Morris Controls and Furon.


Automotive  Accessories - The automotive  accessories  product lines include bug
and stone deflectors,  running boards,  side steps and bed mats for light trucks
and sport-utility  vehicles.  These products are sold in the aftermarket to mass
merchants  and auto supply stores such as Kmart,  WalMart,  Pep Boys and Western
Auto. The major competitors  include Lund,  Deflecta Shield, GT Styling and Auto
Vent Shade.  The  automotive  accessories  segment is reported as a discontinued
operation.


Agricultural Equipment - The agricultural equipment product lines include rotary
cutters,  discs,  harrows and sprayers.  These  products are sold to independent
equipment dealers located primarily in the Southeastern United States. The major
competitors  include Wood  Brothers,  Taylor  Industries,  Inc. and Alamo Group.
Agricultural equipment is reported as a discontinued operation.


Electrical  Components and GPS - The electrical components product line includes
the  design  and  production  of  microcircuits,   cable  assemblies  and  other
electronic  products  used in  telecommunication,  computer  and  transportation
industries. Major customers include Allied Signal, Raychem and Eaton Corp. Major
competitors include CTS, AMP and Nethode. The GPS product line includes commuter
railroad train tracking and agricultural  cyber-farming using global positioning
and geographic  information systems.  Major customers include Tri-Rail,  Florida
Department of Transportation and Via Tropical Fruit.



                                       3
<PAGE>
Acquisitions and Dispositions
-----------------------------

Through  fiscal 1996, the Company  pursued an acquisition  strategy to diversify
its operations. During fiscal 1997, the Company discontinued its diversification
acquisition  strategy in order to focus its corporate and financial resources on
opportunities  emerging in the vehicle components and GPS train tracking markets
and also for the  development  of  commercial  applications  of  sensor  related
products.  The Company may consider  additional  acquisitions in the future that
are strategically related to these opportunities.

On March 16, 1998, the Company completed the sale of the company  comprising the
Automotive Accessories segment.

On  December  16,  1998 the  Company  announced  a plan of  disposition  for the
Agricultural Equipment segment and retained an investment banking firm to advise
the  Company  on the sale and  solicit  potential  purchases  for the  companies
comprising this segment.


Competition
-----------

In general,  the Company's  products are sold in highly  competitive  markets to
customers who are sophisticated and demanding concerning price,  performance and
quality. Products are sold in competition with other independent suppliers (some
of which have  substantial  financial  resources and  significant  technological
capabilities),  and many of these  products  are,  or could be,  produced by the
manufacturers  to  which  the  Company  sells  these  products.   The  Company's
competitive position varies among its product lines.

In the Vehicle  Components  segment the Company is the dominant producer of ETCs
sold in the heavy truck ETC market.  The Company has only one primary competitor
in the diesel heavy truck market.  The Company also  manufactures  pneumatic and
air control  systems for the heavy truck market,  which is comprised of numerous
highly  fragmented  competitors.  The Company  believes the principal  method of
competition for ETC in the trucking  industry is quality and  engineering  added
value  and  reputation.  In  addition,  attainment  of the ISO  9001 and QS 9000
quality certifications is critical to qualifying as a supplier to the automotive
industry and certain  manufacturers  in the truck  industry.  The  Company's two
manufacturing  facilities in its Vehicle  Components segment have attained these
certifications.  In the automotive  market,  ETCs are not yet a well established
product line;  however,  the Company believes that there are approximately  five
major  competitors  currently  supplying  foot  peddles to the major  automobile
manufacturers  and competing for the automotive ETC market.  These companies are
substantially  larger than the Company and have longstanding  relationships with
their  customers,  which could be a significant  barrier to the Company entering
into this market.

In the  agricultural  equipment  segment,  for which the Company has announced a
plan of disposition,  the Company competes  primarily  against four competitors,
three of which are substantially  larger than the Company. The principal methods
of  competition  in  this  segment  are  price,   delivery  and  payment  terms.
Competitors in this industry  currently  provide  seasonal dating for payment of
accounts receivable, in some cases up to 180 days for payment of invoices.

The primary  revenues from the Company's  Electrical  Components and GPS segment
are  derived  from sales of thick  film  hybrids.  This  industry  has  numerous
competitors,  which  compete  primarily  on  engineering  capability  and price.
Although  a GPS  product  designed  for  freight  train  tracking  is  currently
available  on the  market,  the  Company  does not  believe  there are any major
competitors for its commuter train-tracking product.

Entrance  Into New Markets.  The Company plans to introduce its ETC product into
new markets including international markets,  higher-volume small truck markets,
and gasoline engine automotive  markets.  Although the Company's ETC product has
been successful in the domestic  heavy-duty truck market,  there is no assurance
that this product will be accepted in these new markets.  Additional penetration
of the  Company  sales  into  the  diesel  ETC  market  will be  dependent  upon
conversion of smaller diesel  engines to electronic  engines which is controlled
by the engine  manufacturers in the United States.  Conversion of diesel engines
to ETC  that  are not  yet  electronic  in  Western  Europe  is  dependent  upon
compliance with and tightening of air control standards in this region.

                                       4
<PAGE>
Introduction  of ETC into Gasoline  Engines.  Introduction  of ETC into gasoline
engines will require  modification  or redesign of engine  Components  that will
depend upon the timing of development by the automotive  manufacturers and their
original equipment manufacturers.  The Company has no control over the timing of
the introduction of ETC into the automotive or higher-volume truck markets.  The
Company will be competing against much larger  competitors in these markets with
financial  resources  much greater  than those of the Company and with  existing
long term supplier relationships with the automotive industry.



Marketing and Distribution
--------------------------

The Company  sells its  products to customers  in the truck,  automotive,  heavy
equipment,   telecommunication  and  other  diversified   industries  worldwide;
approximately  94% of its sales from  continuing  operations are to customers in
the Vehicle Components  segment and 63% of its sales from continuing  operations
are from sales of ETC products.

For the years ended  September 30, 1998, 1997 and 1996,  Freightliner  accounted
for 21%,  16% and 17%,  Navistar  accounted  for 16%,  16%,  and 13%,  and Volvo
accounted  for  9%,  8%,  and  10%  of net  sales  from  continuing  operations,
respectively.  Approximately  15%,  14% and  19% of net  sales  from  continuing
operations  in fiscal  1998,  1997 and  1996,  respectively,  were to  customers
outside of the United States,  primarily in Canada and Sweden,  and, to a lesser
extent,  in  Europe,  South  America  and  Australia.  See  note 13 of  Notes to
Consolidated Financial Statements.

The Company has retained a marketing  representative in Japan for the purpose of
servicing  existing  customers  selling in the United  States and to solicit new
business opportunities.

The Company  performs  ongoing credit  evaluations  of its customers'  financial
condition and maintains  allowances for potential  credit losses.  Actual losses
and allowances have been within management's expectations.


Existing Future Sales Orders
----------------------------

Future sales orders for the  Company's  products were  approximately  $16,100 at
September  30, 1998,  compared to  approximately  $11,300 at September 30, 1997.
These are orders for which customers have requested delivery at specified future
dates  within one year.  The Company has not  experienced  significant  problems
delivering products on a timely basis.


Environment
-----------

The  Company's  operations  result  in the  production  of small  quantities  of
materials identified by the Environmental Protection Agency of the United States
Government  as  "hazardous  waste  substances"  which  must  be  disposed  of in
accordance  with applicable  local,  state and federal  guidelines.  Substantial
liability  may  result to a company  for  failure,  on the part of itself or its
contractors,  to dispose of hazardous  wastes in accordance with the established
guidelines,  including potential liability for the clean up of sites affected by
improper  disposals.  The  Company  uses its best  efforts  to  ensure  that its
hazardous  substances are disposed of in an environmentally  sound manner and in
accordance with these guidelines.

The Company has  identified  certain  contaminants  in the soil of its Portland,
Oregon  manufacturing  facility,  which the Company believes was disposed on the
property  by  a  previous   property   owner.   The  Company   intends  to  seek
indemnification  from  such  party  for the costs of  permanent  monitoring,  or
cleanup if required.  The Company has retained an environmental  consulting firm
that has conducted tests to determine the extent of any contamination.  Based on
the results of the tests and current  regulations,  the  contamination  is not a
reportable  event.  The Company  believes that it can enforce  available  claims
against the prior  property  owner for any costs of monitoring  or cleanup.  The
Company believes it is currently in compliance with environmental regulations.


                                       5
<PAGE>
Government Regulation
---------------------

The Company's vehicle  component  products must comply with the National Traffic
and Motor Vehicle Safety Act of 1966, as amended,  and  regulations  promulgated
thereunder  which  are  administered  by the  National  Highway  Traffic  Safety
Administration  ("NHTSA").  If,  after an  investigation,  NHTSA  finds that the
Company is not in compliance  with any of it's standards or  regulations,  among
other things,  it may require the Company to recall its products which are found
not to be in  compliance  and  repair or  replace  such  products.  The  Company
believes it is currently in compliance with NHTSA.


Product Research and Development
--------------------------------

The  Company's  operating   facilities  engage  in  engineering,   research  and
development  and  quality  control   activities  to  improve  the   performance,
reliability and cost-effectiveness of the Company's product lines. The Company's
engineering staff works closely with its customers in the design and development
of new products and adapting  products for new  applications.  During 1998, 1997
and 1996,  the Company spent $2,778,  $1,832 and $2,077  respectively,  on these
activities  for  continuing  operations.  The Company  intends to  increase  its
research and development  expenditures in 1999 to design ETC products compatible
with gasoline  powered  vehicles,  develop  commercial  applications for inertia
tilt,  Hall effect,  and optical  sensor  products,  and further  develop  train
tracking  products.  The  Company  is in early  stages of  development  of these
programs  and  expects  to  increase   research  and  development   spending  by
approximately $1,000 in fiscal 1999. The majority of the additional expense will
be spent on  developing  a low cost ETC foot pedal,  which is in early stages of
development.


Patents and Trademarks
----------------------

The  Company's  product  lines  generally  have strong name  recognition  in the
markets which they serve.  The Company has a number of product patents  obtained
over a period of years which expire at various times. The Company considers each
patent to be of value and aggressively  protects its rights against infringement
throughout the world.  The Company owns two patents  (expiring in 2009) which it
believes improved the marketability of the electronic  product line of the heavy
vehicle  components  segment.  The Company  does not  consider  that the loss or
expiration  of either  patent  would  materially  adversely  affect the Company;
however, competition in the electronic product line could increase without these
patents.  The Company owns  numerous  trademarks  which are  registered  in many
countries  enabling  the  Company  to  market  its  products  worldwide.   These
trademarks include "Williams" "Aptek" and "Hardee". The Company believes that in
the  aggregate,  the rights  under its  patents  and  trademarks  are  generally
important to its operations,  but does not consider that any patent or trademark
or group of them  related  to a  specific  process  or  product  is of  material
importance  in relation to the  Company's  total  business  except as  described
above.


Raw Materials; Reliance on Single Source Suppliers
--------------------------------------------------

The Company produces its products from raw materials, including brass, aluminum,
steel,  plastic,  rubber  and zinc,  which  currently  are widely  available  at
reasonable terms. The Company relies upon, and expects to continue to rely upon,
CTS Corporation, Robertshaw and Caterpillar, Inc. as single source suppliers for
critical  components  and/or  products as these suppliers are currently the only
manufacturers  of sensors made  specifically  for the Company's ETC. The Company
manufactures  a foot  pedal  using a contact  position  sensor  manufactured  by
Caterpillar,  Inc. used exclusively on Caterpillar engines. Caterpillar supplies
this sensor and  requires  that its sensor be used on all  Caterpillar  engines;
therefore,  the Company does not consider the Caterpillar sensor supply to be at
risk.  Although these  suppliers have been able to meet the Company's needs on a
timely  basis,  and appear to be  willing to  continue  being  suppliers  to the
Company, there is no assurance that a disruption in a supplier's business,  such
as a strike,  would not disrupt the supply of a component.  Although the Company
has recently experienced stable prices, prices for aluminum zinc, rubber, steel,
and mechanical  components such as gearboxes,  hydraulics,  and contact position
sensors could fluctuate and affect profitability.

                                       6
<PAGE>

Product Warranty
----------------


The Company  warrants its products to the first retail  purchaser and subsequent
owners against malfunctions  occurring during the warranty period resulting from
defects in  material  or  workmanship,  subject to  specified  limitations.  The
warranty on vehicle components is limited to a specified time period, mileage or
hours of use, and varies by product and application. The Company has established
a warranty  reserve  based upon its  estimate of the future cost of warranty and
related service costs. The Company  regularly  monitors its warranty reserve for
adequacy in response to historical experience and other factors.



Employees
---------


The Company employs approximately 511 employees,  including 134 union employees.
The  non-union  employees  of the Company  are  engaged in sales and  marketing,
accounting and administration,  product research and development, production and
quality  control.  The union  employees  are  engaged in  manufacturing  vehicle
components  in  the  Portland,  Oregon  facility  and  are  represented  by  the
International  Union, United Automobile Workers of America and Amalgamated Local
492 (the  "Union").  The  Company  and the Union  have a  collective  bargaining
agreement that expires in September 2002,  which provides for wages and benefits
(including pension, death, disability,  health care, unemployment,  vacation and
other  benefits) and contains  provisions  governing  other terms of employment,
such as seniority, grievances, arbitration and union recognition.  Management of
the Company believes that its relationships with its employees and the Union are
good. The Company could experience  changes in non-union labor costs as a result
of changes in local economies and general wage increases.



                                       7
<PAGE>

Item 2. Properties
------------------


The following table outlines the principal  manufacturing  and other  facilities
owned by the Company, subject to mortgages on all facilities except Agrotec.




Entity             Facility Location                   Type and Size of Facility
------             -----------------                   ------------------------

Kenco              Middlebury, Indiana                 Manufacturing and offices
                                                       139,000 square feet

Hardee             Loris, South Carolina               Manufacturing and offices
                                                       101,000 square feet

Aptek              Deerfield Beach, Florida            Manufacturing and offices
                                                       48,000 square feet

Agrotec            Pendleton, North Carolina           Manufacturing and office
                                                       43,000 square feet



The  Company's  manufacturing  facilities  are equipped  with the  machinery and
equipment  necessary  to  manufacture  and  assemble  its  products.  Management
believes  that the  facilities  have been  maintained  adequately,  and that the
Company  could  increase  its  production  output  significantly  at  any of its
facilities  with minimal  expansion of its present  equipment and work force. In
addition,  the Company  leases a 160,000 square foot  manufacturing  facility in
Portland,  Oregon, pursuant to a sale and leaseback transaction.  See Note 17 of
Notes to Consolidated Financial Statements. The Kenco manufacturing facility was
retained  and not sold as part of the  disposal  of the  Automotive  Accessories
segment.  The Hardee and Agrotec  properties  are  classified as assets held for
disposition.


The Company's  facilities that are encumbered by mortgages at September 30, 1998
are as follows: Kenco - $1,020,000, Hardee - $675,000 and Aptek - $2,514,000.


Item 3. Legal Proceedings
-------------------------


The Company and its  consolidated  subsidiaries  are parties to various  pending
judicial  and  administrative  proceedings  arising  in the  ordinary  course of
business.  The Company's management and legal counsel have reviewed the probable
outcome of these proceedings,  the costs and expenses  reasonably expected to be
incurred,  the availability and limits of the Company's insurance coverage,  and
the Company's established reserves for uninsured liabilities.  While the outcome
of the pending  proceedings  cannot be predicted  with  certainty,  based on its
review,  management  believes  that  any  liabilities  that may  result  are not
reasonably  likely  to  have  a  material  effect  on the  Company's  liquidity,
financial condition or results of operations.



Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------


The Company did not submit any matters to a vote of its security  holders during
the fourth quarter of the year ended September 30, 1998.




                                       8
<PAGE>
                                     Part II



Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
-----------------------------------------------------------------------------

The  Company's  common  stock is  traded on the  over-the-counter  market of the
National  Association  of  Securities  Dealers  Automated  Quotation  ("NASDAQ")
National Market System under the symbol "WMCO."

The range of high and low bid closing  quotations for the Company's common stock
for each fiscal quarter for the past two fiscal years is as follows:



                                                      1998
                                                      ----
                                               High            Low
                                               ----            ---

              Quarter
              -------
    October 1 - December 31                   $2.50           $1.94
    January 1 - March 31                       2.78            2.22
    April 1 - June 30                          3.34            2.59
    July 1 - September 30                      2.94            2.03




                                                      1997
                                                      ----
                                               High            Low
                                               ----            ---
              Quarter
              -------

    October 1 - December 31                   $ 2.78          $ 1.97
    January 1 - March 31                        2.84            2.19
    April 1 - June 30                           2.59            1.94
    July 1 - September 30                       2.41            2.13


There were 524 record  holders of the Company's  common stock as of November 30,
1998. The Company has never paid a dividend with respect to its common stock and
has no plans to pay a dividend in the foreseeable future.



                                       9
<PAGE>

Item 6. Selected Financial Data
-------------------------------
(Dollars in thousands - except per share amounts)


Statement of Income Data:
<TABLE>
<CAPTION>
<S>                                                <C>             <C>            <C>           <C>          <C>   

Year ended September 30,                               1998            1997           1996*       1995**       1994***
------------------------                             --------        --------       --------    ----------   -----------

Net sales from continuing operations                $   57,646      $  46,671      $  40,253     $ 37,968     $ 29,954

Earnings from continuing operations                      4,611          2,515          2,975        4,812        3,520
Net earnings (loss)                                        312        (2,037)          (561)        4,512        3,641
Earnings from continuing operations per common
share - basic                                       $      .24      $     .14      $     .18     $    .28     $    .22
Earnings from continuing operations per common
share - diluted                                     $      .23      $     .14      $     .17     $    .27     $    .21
Net earnings (loss) per common share - basic        $      .00      $   (.12)      $   (.03)     $    .27     $    .23
Net earnings (loss) per common share - diluted      $      .00      $   (.12)      $   (.03)     $    .26     $    .22
Cash dividends per common share                     $        -      $       -      $       -     $      -     $      -

Balance Sheet Data

September 30,                                          1998            1997           1996*       1995**       1994***
-------------                                        --------        --------       --------    ----------   -----------

Current assets                                      $   31,087      $  25,156      $  30,926     $ 25,788     $ 20,874
Current liabilities                                     11,901          9,028         29,600        7,881       10,012
Working capital                                         19,186         16,128          1,326       17,907       10,862
Total assets                                            66,359         48,313         53,049       47,182       32,159
Long-term liabilities                                   30,047         22,450          4,726       20,244        9,699
Minority interest in consolidated subsidiaries               -              -            713          764            -
Shareholders' equity                                $   24,411      $  16,835      $  18,010     $ 18,293     $ 12,448

</TABLE>


     Note:  Balance  sheet  amounts  for  1996,  1995  and  1994  have  not been
reclassified   to  reflect  the   discontinued   operations  of  the  Automotive
Accessories  and  Agricultural   Equipment  segments  as  net  assets  held  for
disposition.

* 1996 data includes  acquisitions  made in Apri1 and July 1996. Net sales, loss
from  operations  and total assets  related to these  acquisitions  were $2,782,
$(46)  and  $2,869,  respectively.  See  note 16 to the  Notes  to  Consolidated
Financial Statements for information regarding these acquisitions.

** 1995 data  includes  an  acquisition  made in April.  Net sales,  income from
operations and total assets related to this  acquisition  were $2,863,  $182 and
$7,544, respectively.

*** 1994 data  includes a small  acquisition  made in January  1994.  Net sales,
earnings from operations and total assets related to this  acquisition  were not
material.





                                       10
<PAGE>
Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in thousands except per share amounts)
-------------------------------------------------------------
See "Cautionary Statement" contained at the beginning of this report.
              
Liquidity and Capital Resources

The Company's  principal  sources of liquidity are  borrowings  under its credit
facilities,  leases for equipment  purchases from various leasing  companies and
funds generated from  operations.  The Company  anticipates  that cash generated
from  operations,  bank  borrowings  and leases  will be  sufficient  to satisfy
working capital and capital expenditure  requirements for current operations for
the next twelve months.  In addition,  the Company expects to increase  research
and development  spending by  approximately  $1,000 in fiscal 1999. At September
30, 1998, the Company's  working capital improved to $19,186 compared to $16,128
at  September  30,  1997 and the  current  ratio was 2.6 at  September  30, 1998
compared to 2.8 at September  30,  1997.  Cash flow from  continuing  operations
declined to $2,430 for the year ended  September 30, 1998 compared to $3,327 for
the prior fiscal year primarily as a result of increased  inventory and accounts
receivable required to sustain increasing sales from continuing operations.  The
Company's  discontinued  operations  used cash of  $4,094  and $10 for the years
ended September 30, 1998 and 1997, respectively.

At September  30, 1998  accounts  receivable  increased to $11,765,  compared to
$6,726  at  September  30,  1997.  The  increase  was  primarily  as a result of
increased sales in the Vehicle  Components segment including sales of production
tooling  which  typically  have a  longer  payment  period  and  from  increased
receivables  from sales of inventory to the purchaser of Kenco. At September 30,
1998  property,  plant and equipment  increased  $5,480 to $20,013,  compared to
$14,533 at September 30, 1997 due primarily to capital  equipment  purchases and
building  improvements at the Company's plastic  injection molding facility.  At
September  30,  1998 long  term  debt and  capital  leases  increased  $6,365 to
$29,027,  compared to $22,662 at  September  30, 1997 due  primarily  to capital
leases  for  capital  equipment  purchases  and  building  improvements  at  the
Company's  plastic  injection  molding facility and increased  borrowings on the
Company's revolving credit facility. At September 30, 1998, stockholder's equity
increased  $7,576 to  $24,411,  compared  to $16,835 at  September  30, 1997 due
primarily to a preferred stock private placement completed during fiscal 1998.

During the three fiscal years ended September 30, 1998, the Company's Automotive
Accessories  and  Agricultural  Equipment  segments  reported  a net  loss  from
operations of approximately  $4,131 and $3,263, respectively and reported losses
on  disposal  of $3,590 and  $1,403,  respectively.  The  combined  discontinued
operations  used cash of $11,935 for the three years ended  September  30, 1998.
Excluding the Automotive  Accessories and Agricultural  Equipment segments,  the
Company reported a cumulative  profit from continuing  operations of $10,101 and
cash provided by  operations  of $9,860  during that period.  As a result of the
sale,  the  Company  will not  incur  future  uses of cash  from the  Automotive
Accessories  segment.  The Company  anticipates that the Agricultural  Equipment
segment will use cash during the period until it is sold or otherwise disposed.

In April 1997 the Company sold its Portland,  Oregon manufacturing facility in a
sale-leaseback  transaction  for $4,524,  which was accounted for as a financing
transaction.  The Company loaned the purchaser  $3,200 in April 1998 as required
under the terms of the agreement. The Company has notified the purchaser that it
intends to repurchase the property with an expected closing on or before January
31, 1999.  The  Company's  bank has agreed to provide  additional  term loans to
finance the transaction.  If the Company repurchases the property, the note will
be repaid upon the purchase.

Year 2000 Conversion.  The Company  recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 software failures. Software failures
due to processing errors  potentially  arising from calculations  using the Year
2000  date  are a  known  risk.  The  Company  is  addressing  this  risk to the
availability  and  integrity of  financial  systems and the  reliability  of the
operational  systems.  The Company has established  processes for evaluating and
managing  the  risks  and  cost   associated   with  this   problem,   including
communicating with suppliers,  dealers and others with which it does business to
coordinate Year 2000 conversion.  The total cost of compliance and its effect on
the Company's  future  results of operations is being  determined as part of the
detailed   conversion   planning   process.   During  1998,  the  Company  began
implementing  the  installation  of new  financial  software  that is Year  2000
compliant  for the purpose of improving  operations  and service to its existing
and  prospective  truck and  automotive  customers.  The decision to upgrade the
Company's  software was made  irrespective of Year 2000 compliance  issues.  The
system is expected to be fully  operational  in the summer of 1999.  The Company
has contingency plans in place in the event that the software  implementation is
delayed.
                                       11
<PAGE>

Since  January  1998 the  Company  has  been  engaged  in  achieving  Year  2000
compliance.  The Company's  Year 2000 project is divided into several phases and
is  progressing  with  corrective  actions for major systems well under way. All
hardware,  software,  services and business  relationships with trading partners
which  could be  affected  by Year 2000  issues are being  audited for Year 2000
compliance.

The Company  relies on computer  systems and  software to operate its  business,
including applications used in sales, purchasing,  inventory management, finance
and various administrative functions. The Company has determined that certain of
its software applications will be unable to interpret appropriately the calendar
Year 2000 and subsequent  years.  As of September 30, 1998, 60% of the Company's
systems are Year 2000 compliant. The target date for full compliance is June 30,
1999.

The Company's total budget for its Year 2000 project is $150, approximately half
of which  amount  will be spent  through  March  1999.  This  amount  represents
approximately  17 percent of total IT expenditures  budgeted for the period from
October 1998 through  September  1999. The Company  continues to manage total IT
expenses  by   re-prioritizing   or  curtailing   less   critical   investments,
incorporating  Year 2000 readiness into previously  planned system  enhancements
and by using existing staff to implement its Year 2000 program.  The Company has
hired outside consultants for its Year 2000 project, and it may need to purchase
additional hardware or software.

The Company acquires a majority of its inventory from  approximately 22 vendors.
If these vendors have  unresolved Year 2000 issues which affect their ability to
supply merchandise,  the Company could be adversely affected.  The Company plans
to complete a Year 2000  readiness  survey of its top vendors by March 1999.  In
the event  that it  appears a vendor  will be  adversely  affected  by Year 2000
issues, the Company believes that it will be able to find alternative suppliers.

Should the company not achieve full  compliance  in a timely  manner or complete
its Year 2000 project within its current cost estimates, the Company's business,
financial  condition  and results of  operations  could be  adversely  affected.
However,  in the event that the Company fails to meet the deadlines  above,  the
Company  believes  that the  financial  impact  will not be  material  since all
systems  believed  by the Company to be  critical  are  expected to be Year 2000
compliant.

Recent FASB Pronouncements - The Financial  Accounting  Standards Board ("FASB")
--------------------------
recently  issued SFAS No.'s 130 and 131,  "Reporting  Comprehensive  Income" and
"Disclosures   about  Segments  of  an  Enterprise  and  Related   Information,"
respectively.  Both of these statements are effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes requirements for disclosure of
comprehensive income which includes certain items previously not included in the
statement of income including minimum pension liability  adjustments and foreign
currency  translation  adjustments,  among others.  Reclassification  of earlier
financial statements for comparative purposes is required.  SFAS No. 131 revises
existing  standards  for  reporting  information  about  operating  segments and
requires the reporting of selected  information  in interim  financial  reports.
SFAS No. 131 also establishes  standards for related  disclosures about products
and services,  geographic areas, and major customers.  Management  believes that
implementation  of SFAS  No.  130 and No.  131 will not  materially  affect  the
Company's financial statements.

In June 1998 the FASB issued  Statement of Financial  Accounting  Standards  No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133  establishes  accounting  and reporting  standards  for all  derivative
instruments.  SFAS 133 is effective  for fiscal years  beginning  after June 15,
1999. The Company does not have any derivative instruments and accordingly,  the
adoption of SFAS 133 will have no impact on the Company's  financial position or
results of operations.


                                       12
<PAGE>
Results of Operations
---------------------

Year ended September 30, 1998 compared to September 30, 1997
------------------------------------------------------------

Overview
--------

Net sales from  continuing  operations  increased  24% to $57,646 in fiscal 1998
from  $46,671 in fiscal 1997 due to higher unit sales  volumes in the  Company's
Vehicle Components segment.

Earnings  from  continuing  operations  increased  $2,599,  or 41%, to $8,991 in
fiscal  1998 from  $6,392 in fiscal  1997.  The  increase  was due to  increased
earnings  from  continuing   operations  of  $3,383  in  the  Company's  Vehicle
Components  segment due to higher unit sales,  which was offset by higher losses
from continuing  operations of $784 in the Electrical Components and GPS segment
due  to  increased   operating   expenses  for  research  and   development  and
administration  incurred for sensor  development.  Net earnings from  continuing
operations  increased  83%, or $2,096 in fiscal  1998,  primarily as a result of
increased  earnings from  continuing  operations of $2,599 and a lower effective
tax rate as a result of  anticipated  and realized  state tax refunds from prior
years.

Net  earnings  were $42 in fiscal  1998  compared to a net loss of $2,037 in the
prior  fiscal year due to  increased  net earnings  from  continuing  operations
offset  by losses  in the  Company's  discontinued  Automotive  Accessories  and
Agricultural Equipment segments.

Net Sales
---------

Net sales from continuing operations in the Vehicle Components segment increased
$11,157,  or 26%, to $54,071 in fiscal 1998 over levels  achieved in fiscal 1997
due to higher ETC unit sales volumes in the Class 7 and 8 truck OEM markets. Net
sales from continuing  operations in the Company's Electrical Components and GPS
segments  decreased  $182,  or  5%,  due  to  lower  unit  sales  of  electrical
components.  Sales of vehicle components and electrical components accounted for
94% and 6% as a percent of total net sales from  continuing  operations  for the
year ended September 30, 1998 compared to 92% and 8% for the prior year.

Gross margin
------------

Gross margin from continuing  operations  increased  $4,820,  or 38%, to $17,517
compared to $12,697 in fiscal 1997.  Gross margins  increased 41% in fiscal 1998
in the  Vehicle  Components  segment  due to higher  unit  sales  volumes of ETC
products  and  improved  margins  at the  Company's  plastic  injection  molding
facility. Increases in this segment were offset by a decrease in gross margin of
3% in the Electrical Components and GPS segment.  Decreased gross margin in this
segment is attributed to lower unit sales volumes. Gross margins as a percent of
sales  increased to 30% in fiscal 1998 compared to 27% in fiscal 1997  primarily
as a result of improved  operating  margins at the Company's  plastic  injection
molding facility in the Vehicle Components segment.

Operating expenses
------------------

Operating  expenses for continuing  operations  increased $2,221, or 35%, during
fiscal  1998  compared  to  amounts  in fiscal  1997.  Operating  expenses  as a
percentage of net sales from  continuing  operations  increased to 15% in fiscal
1998 compared to 14% in fiscal 1997.  Operating  expenses  increased  $1,459, or
34%, in fiscal 1998 in the Vehicle  Components  segment and $762, or 38%, in the
Electrical  Components  and GPS segment  compared to 1997  levels.  Increases in
operating  expenses were attributed to higher research and development  expenses
related to new product  development  and  increased  selling and  administration
costs to support the increased sales levels.

Research and development  expenses for continuing  operations increased $946, or
52%, to $2,778  during  fiscal 1998  compared  to amounts in fiscal  1997.  As a
percentage of net sales from  continuing  operations,  research and  development
expenses  increased  from  4% to 5%.  Research  and  development  expenses  were
increased  in fiscal  1998 to  support  new  product  development  for  existing
customers,  for development of the automotive ETC product and for development of
sensor-related products.



                                       13
<PAGE>

Selling  expenses for  continuing  operations  increased 22% to $2,065 in fiscal
1998 compared to 1997 levels. Selling expenses as a percentage of net sales from
continuing  operations  were  4% in  fiscal  1997  and  1998.  Selling  expenses
increased to support increased sales volumes in the Vehicle Components segment.

Administration  expenses for continuing  operations  increased  $908, or 33%, in
fiscal 1998 to $3,683 compared to fiscal 1997 amounts.  Administration  expenses
were 6% of net  sales  from  continuing  operations  in  fiscal  1998 and  1997.
Increases  in dollar  amount  in  fiscal  1998  were  attributed  to  additional
administrative personnel required to support increased sales volumes.

Interest and Other Expenses
---------------------------

Interest  expenses  increased $257, or 21%, to $1,508 in fiscal 1998 from $1,251
in fiscal 1997 due to increased borrowings.  Allocated interest expense included
in  discontinued  operations for the years ended September 30, 1998 and 1997 was
$279 and $723,  respectively.  Equity  interest in loss of  affiliate  increased
$122,  or 32% to $506 in fiscal 1998 from $384 in fiscal  1997 due to  increased
equity interest in losses of Ajay.

Discontinued operations
-----------------------

The Company reported a net loss from discontinued operations of $4,299 in fiscal
1998 compared to a net loss of $4,552 in fiscal 1997. The Company adopted a plan
of disposal for the  Automotive  Accessories  segment in fiscal 1997 and for the
Agriculture Equipment segment in fiscal 1998.

The 1998 loss from discontinued  operations of the Agriculture Equipment segment
consisted of pre-measurement  net losses of $1,271 net of income tax benefits of
$959 and an estimated loss on disposal of $1,403,  net of income tax benefits of
$972.  The  estimated  loss on disposal  includes an  estimated  loss during the
phase-out period of $496 net of income tax benefits of $304. The pre-measurement
loss of $1,271 in fiscal 1998  compares to a loss from  operations  of $1,380 in
fiscal 1997. Net sales from the Agriculture  Equipment business declined $1,081,
or 11% to $8,500 in fiscal 1998  compared to $9,581 in fiscal 1997.  The decline
in sales  was due to lower  unit  sales  attributable  primarily  to a poor farm
economy in 1998.

The 1998 loss from discontinued operations of the Automotive Accessories segment
was $1,625 net of income tax  benefits of $1,001.  The  additional  loss in 1998
resulted from the loss on the actual  disposition of the Automotive  Accessories
segment in 1998 as compared to the estimated loss in 1997.



                                       14
<PAGE>
Results of Operations
---------------------

Year ended September 30, 1997 compared to September 30, 1996
------------------------------------------------------------

Overview
--------

Net sales from continuing  operations  increased  $6,418,  or 16%, to $46,671 in
fiscal 1997 from $40,253 in fiscal 1996 due to higher unit sales  volumes in the
Company's Vehicle Components segment.

Earnings from continuing  operations  increased $220, or 4%, to $6,392 in fiscal
1997 from $6,172 in fiscal 1996. The increase was due to increased earnings from
continuing operations of $778 in the Company's Vehicle Components segment due to
higher unit sales, which was offset by higher losses from continuing  operations
of $558 in the Electrical  Components and GPS segment due to increased operating
expenses.  Net earnings from  continuing  operations  decreased $460, or 15%, in
fiscal 1997 primarily as a result of higher interest, other expenses and taxes.

Net loss was $2,037 in fiscal  1997  compared to a net loss of $561 in the prior
fiscal year due to decreased earnings from continuing  operations of $460 and an
increase in the loss from discontinued operations of $1,016.

Net Sales
---------

Net sales from  continuing  operations  for the year ended  September  30,  1997
increased  $6,418, or 16%, to $46,671 compared to $40,253 for the prior year due
to higher ETC unit sales  volumes in the Class 7 and 8 truck OEM markets.  Sales
of vehicle  components and electrical  components  accounted for 92% and 8% as a
percent of total sales for the year ended September 30, 1997 compared to 90% and
10% for the prior year. Vehicle components sales were $42,914 for the year ended
September  30, 1997  compared to $36,141 for the prior year,  an increase of 19%
due to higher  ETC unit sales  volumes  in the Class 7 and 8 truck OEM  markets.
Sales of electrical components were $3,757 for the year ended September 30, 1997
compared to $4,112 for the prior year,  a decrease of 9% due to lower unit sales
of electrical components.

Gross margin
------------

Gross margin as a percentage of sales for the year ended  September 30, 1997 was
27% compared to 30% for the prior year. The decrease in gross margin  percentage
resulted from low gross margins in the Company's  Vehicle  Components  segment's
plastic injection molding  operation.  Gross margins increased 8% in fiscal 1997
in the Company's  Vehicle  Components  segment due to higher unit sales volumes.
Gross  margins  decreased  17% in the Company's  Electrical  Components  and GPS
segments.
            
Operating Expenses
------------------
              
Operating  expenses for the year ended  September 30, 1997 were $6,305 or 14% of
sales compared to $5,756 or 14% of sales for the same period in the prior year.

Research and  development  expenses for continuing  operations  decreased 12% to
$1,832 during fiscal 1997 compared to amounts in fiscal 1996. As a percentage of
net  sales  from  continuing  operations,   research  and  development  expenses
decreased from 5% to 4%.  Decreases in dollar amount were due to curtailments of
research  and  development  activities  in  all  business  segments  during  the
Company's bank refinancing negotiations in fiscal 1997.

Selling  expenses for  continuing  operations  increased 27% to $1,698 in fiscal
1997 compared to 1996 levels. Selling expenses as a percentage of net sales from
continuing  operations  increased from 3% in fiscal 1996 to 4% in 1997.  Selling
expenses increased $212 due to increased sales volumes in the Vehicle Components
segment  and  $146 due to  additional  sales  and  marketing  activities  in the
Electrical Components and GPS segments.

Administration  expenses for continuing  operations increased 19% in fiscal 1997
to  $2,775  compared  to $2,339 in fiscal  1996.  Administration  expenses  as a
percentage of net sales from  continuing  operations  were 6% in fiscal 1997 and
1996.  Increases  in dollar  amount were  attributed  primarily  to higher sales
levels in the  Company's  Electrical  Components  and GPS  segment.  General and
administrative  expenses  also  increased due to the  acquisition  of businesses
within the Vehicle Components and Electrical Components and GPS segments.

                                       15
<PAGE>

Interest and Other Expenses
---------------------------

Interest expense included in continuing  operations for the year ended September
30, 1997 increased to $1,251 compared to $1,087 for the year ended September 30,
1996 due to increased  interest rates  associated  with the Company's  borrowing
activities.  Allocated interest expense included in discontinued  operations for
the years ended  September  30,  1997 and 1996 was $723 and $842,  respectively.
Equity  interest in loss of affiliate  increased $209, or 119% to $384 in fiscal
1998 from $175 in fiscal  1997 due to  increased  equity  interest  in losses of
Ajay.


Discontinued operations
-----------------------

The Company reported a net loss from discontinued operations of $4,552 in fiscal
1997 compared to a net loss of $3,536 in fiscal 1996. The Company adopted a plan
of disposal for the  Automotive  Accessories  segment in fiscal 1997 and for the
Agriculture  Equipment segment in fiscal 1998. All prior year reported operating
results have been restated to show the  discontinued  segments  separately  from
continuing operations.

Net sales from the Agriculture  Equipment  segment  declined  $1,445,  or 13% to
$9,581 in fiscal 1997  compared to $11,026 in fiscal 1996.  The decline in sales
was due to lower unit sales attributable primarily to increased competition. The
loss from operations  before allocated  interest expense and income tax benefits
increased  $1,572,  or 221%,  to $2,284 in fiscal  1997  compared to $712 in the
prior fiscal year.

Net sales from the discontinued  Automotive Accessories segment declined $7,377,
or 46%,  in fiscal 1997 to $8,666 from  $16,043 in fiscal  1996.  The decline in
automotive  accessory  sales  were due to lower  unit  sales  and  lower  prices
resulting from strong  downward price pressure  generated by competitors who are
more  vertically  integrated and have lower cost  structures  than the Company's
Automotive Accessories segment.

Net losses from the discontinued  Automotive Accessories segment were $3,172 net
of tax  benefits  of $2,121  for  fiscal  1997,  compared  to $2,924  net of tax
benefits of $1,885 in fiscal 1996. The fiscal 1997 net loss includes  operations
through  the  measurement  date of May 8, 1997.  All losses  incurred  after the
measurement date are reported as losses on disposal of discontinued  operations.
The 1996 losses include a pre-tax operating restructuring charge of $2,250.

The estimated loss on disposal of the Automotive  Accessories  segment of $1,965
consists of estimated future operating losses net of tax benefits of $1,311.



                                       16
<PAGE>
Item 8.    Financial Statements and Supplementary Data
------------------------------------------------------



                             Williams Controls, Inc.
                   Index to Consolidated Financial Statements



                                                                        Page

Consolidated Balance Sheets at September 30, 1998 and 1997               18

Consolidated  Statements of  Shareholders' Equity for the 
   years ended September 30, 1998, 1997 and 1996                         19

Consolidated  Statements of Operations  for the years
   ended  September 30, 1998, 1997 and 1996                              20

Consolidated  Statements  of Cash Flows for the years 
   ended  September 30, 1998, 1997 and 1996                              21

Notes to Consolidated Financial Statements                            22-47

Report of Independent Public Accountants                                 48

Independent Auditors' Report                                             49

See page 52 for Index to Schedules and page 56 for Exhibit Index.






                                       17
<PAGE>

                             Williams Controls, Inc.
                           Consolidated Balance Sheets
         (Dollars in thousands, except share and per share information)

<TABLE>
<CAPTION>
<S>                                                               <C>               <C>    
                                                                   September 30,     September 30,
                                                                        1998             1997
                                                                   -------------     -------------
ASSETS
------

Current Assets:
---------------
  Cash and cash equivalents                                             $  1,281         $    700
  Trade and other accounts receivable, less allowance of
      $325 and $86 in 1998 and 1997, respectively                         11,765            6,726
  Inventories                                                             10,693           11,186
  Deferred taxes and other                                                 2,231            1,539
  Net assets held for disposition                                          5,117            5,005
                                                                   -------------     -------------                      
   Total current assets                                                   31,087           25,156
                                                                   -------------     -------------

Property plant and equipment, net                                         20,013           14,533
Investment in and note receivable from affiliate                           6,140            4,204
Note receivable                                                            3,200                -
Net assets held for disposition                                            1,847            3,112
Other assets                                                               4,072            1,308
                                                                   =============     =============
   Total assets                                                         $ 66,359         $ 48,313
                                                                   =============     =============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current Liabilities:
--------------------
  Accounts payable                                                      $  4,771         $  4,619
  Accrued expenses                                                         3,399            2,482
  Current portion of long-term debt and capital leases                     1,181            1,427
  Estimated loss on disposal                                               2,550              500
                                                                   -------------     -------------
   Total current liabilities                                              11,901            9,028

Long-term debt and capital lease obligations                              27,846           21,235
Other liabilities                                                          2,201            1,215

Commitments and contingencies (Note 19)

Shareholders' equity:
---------------------
  Preferred stock ($.01 par value, 50,000,000 authorized; 80,000 issued
      and outstanding at September 30, 1998)                                   1                -
  Common stock ($.01 par value, 50,000,000 authorized; 18,311,288 and
     17,912,240 issued at September 30, 1998 and 1997, respectively)         183              179
  Additional paid-in capital                                              17,917            9,822
  Retained earnings                                                        7,444            7,402
  Unearned ESOP shares                                                       (73)            (191)
  Treasury shares (130,200 shares at September 30, 1998 and 1997)           (377)            (377)
  Note Receivable                                                           (500)               -
  Pension liability adjustment                                              (184)               -
                                                                   -------------     -------------
   Total shareholders' equity                                             24,411           16,835
                                                                   -------------     -------------
    Total liabilities and shareholders' equity                          $ 66,359         $ 48,313
                                                                   =============     =============


</TABLE>


      The accompanying notes are an integral part of these balance sheets.



                                       18
<PAGE>
<TABLE>
<CAPTION>
<S>                  <C>      <C>     <C>        <C>    <C>          <C>         <C>       <C>      <C>        <C>          <C>
                                                      Williams Controls, Inc.
                                          Consolidated Statements of Shareholders' Equity
                                                       (Dollars in thousands)
                                                                                                                 
                         Issued             Issued       Additional              Unearned                        Pension     Share
                     Preferred Stock     Common Stock      Paid in   Retained      ESOP    Treasury    Note     Liability   Holders'
                     Shares   Amount   Shares    Amount    Capital   Earnings     Shares    Shares  Receivable  Adjustment   Equity
                                                                  
                     ------   ------ ----------  ------  ----------  --------    --------  -------- ----------  ----------  --------
Balance, September 
   30, 1995             -       $-   17,264,987   $173     $9,023    $10,000      $(630)      $  -       $ -      $(273)    $18,293

Net loss                -        -            -      -          -      (561)           -         -         -           -      (561)
Issuance of shares 
  upon exercise of 
  stock options and 
  warrants              -        -      455,000      4        231          -           -         -         -           -        235
Common stock issued 
  pursuant to           
  acquisitions          -        -      150,000      2        288          -           -         -         -           -        290
Reduction of 
  unallocated ESOP         
  shares                -        -            -      -        129          -         119         -         -           -        248
Change in pension 
  liability             
  adjustment            -        -            -      -          -          -           -         -         -          45         45
Cost of treasury 
  shares acquired       -        -            -      -          -          -           -     (540)         -           -      (540)
                     ------   ------ ----------  ------  ----------  --------    --------  -------- ----------  ----------  --------
Balance, September 
   30, 1996             -        -   17,869,987    179      9,671      9,439       (511)     (540)         -       (228)     18,010


Net loss                -        -            -      -          -    (2,037)           -         -         -           -    (2,037)
Issuance of 
  contingent 
  shares for            -        -       42,253      -        106          -           -         -         -           -        106
  for acquisition
Treasury stock 
  issued for            -        -            -      -          -          -           -       163         -           -        163
  acquisition 
  services
Reduction of
  unallocated           -        -            -      -         45          -         320         -         -           -        365
  ESOP shares                         
Change in pension 
  liability
  adjustment            -        -            -      -          -          -           -         -         -         228        228
                     ------   ------ ----------  ------  ----------  --------    --------  -------- ----------  ----------  --------
Balance, September 
   30, 1997             -        -   17,912,240    179      9,822      7,402       (191)     (377)         -           -     16,835
                                                                                                                          

Net earnings            -        -            -      -          -        312           -         -         -           -        312
Issuance of 
  preferred 
  stock              80,000      1            -      -      7,336          -           -         -         -           -      7,337
Dividends on 
  preferred 
  stock                 -        -            -      -          -      (270)           -         -         -           -      (270)
Common stock issued 
  in satisfaction         
  of note payable       -        -       42,329      1         99          -           -         -         -           -        100
Issuance of stock 
  upon exercise of
  stock options         -        -      150,000      1         61          -           -         -         -           -         62
Common stock issued 
  to affiliate for
  note receivable       -        -      206,719      2        498          -           -         -     (500)           -          -
Reduction of 
  unallocated 
  ESOP Shares           -        -            -      -          7          -         118         -         -           -        125
Change in pension 
  liability 
  adjustment            -        -            -      -          -          -           -         -         -       (184)      (184)
Income tax benefit  
  of non-qualified    
  stock option 
  exercises             -        -            -      -         94          -           -         -         -           -         94
                     ------   ------ ----------  ------  ----------  --------    --------  -------- ----------  ----------  --------
Balance, September 
  30, 1998           80,000     $1   18,311,288   $183    $17,917     $7,444       $(73)    $(377)    $(500)      $(184)    $24,411
                     ======   ====== ==========  ======  ==========  ========    ========  =======  ==========  ==========  ========

</TABLE>

        The accompanying notes are an integral part of these statements.


                                       19
<PAGE>
                             Williams Controls, Inc.
                      Consolidated Statements of Operations
         (Dollars in thousands, except share and per share information)

                                             For the year ended September 30,
                                              1998         1997          1996
 
Sales                                       $ 57,646     $ 46,671      $ 40,253
Cost of sales                                 40,129       33,974        28,325
                                            --------     --------      ---------
Gross margin                                  17,517       12,697        11,928

Operating expenses:
 Research and development                      2,778        1,832         2,077
 Selling                                       2,065        1,698         1,340
 Administration                                3,683        2,775         2,339
                                            --------     --------      ---------
  Total operating expenses                     8,526        6,305         5,756

Earnings from continuing operations            8,991        6,392         6,172

Other expenses:
  Interest expense, net                        1,508        1,251         1,087
  Equity interest in loss of affiliate           506          384           175
                                            --------     --------      ---------
   Total other expenses                        2,014        1,635         1,262

Earnings from continuing operations
   before income tax expense                   6,977        4,757         4,910
Income tax expense                             2,366        2,242         1,935
                                            --------     --------      ---------
Earnings from continuing operations            4,611        2,515         2,975

Discontinued operations:                                              
  Net loss from operations of the
      agricultural segment                    (1,271)      (1,380)         (612)
  Net loss on disposal of the
       agricultural segment, including $496
       for operating losses during
       phase-out period                       (1,403)           -             -
  Net loss from operations of automotive
       accessories segment                         -       (1,207)       (2,924)
  Net loss on disposal of automotive
      accessories segment, including $387
      and $1,965 for operating losses
      during phase-out period,respectively    (1,625)      (1,965)            -
                                            --------     --------      ---------
 Net loss from discontinued operations        (4,299)      (4,552)       (3,536)
                                            --------     --------      ---------
Net earnings (loss)                              312       (2,037)         (561)
Dividends on preferred stock                    (270)           -             -
                                            --------     --------      ---------
Net earnings (loss) allocable to common
    shareholders                                $ 42     $ (2,037)       $ (561)
                                            ========     ========      =========

Earnings per common share from
    continuing operations - basic            $  0.24      $  0.14       $  0.18
                                            --------     --------      ---------
Loss per common share from
   discontinued operations - basic           $ (0.24)     $ (0.26)      $ (0.21)
                                            --------     --------      ---------
Net earnings (loss) per common
   share - basic                             $  0.00      $ (0.12)      $ (0.03)
                                            --------     --------      ---------
Weighted average shares used in per
   share calculation - basic               17,922,558   17,656,900    17,186,646
                                           ==========   ==========    ==========

Earnings per common share from
   continuing operations - diluted           $  0.23      $  0.14       $  0.17
                                            --------     --------      ---------
Loss per common share from
   discontinued operations - diluted         $ (0.23)     $ (0.26)      $ (0.20)
                                            --------     --------      ---------
Net earnings (loss) per common
   share - diluted                           $  0.00      $ (0.12)      $ (0.03)
                                            --------     --------      ---------
Weighted average shares used in per
   share calculation - diluted             19,808,460   18,001,799    17,461,885
                                           ==========   ==========    ==========


        The accompanying notes are an intergral part of these statements.


                                       20
<PAGE>

                             Williams Controls, Inc.
                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)

                                             For the year ended September 30,
                                             1998           1997          1996
                                          -----------    ----------    ---------
Cash flows from operating activities:
 Net earnings (loss)                       $     312      $(2,037)       $ (561)

Adjustments to reconcile net earnings
 (loss) to net cash from continuing operations:
 Loss from discontinued operations             4,299         4,552         3,536
 Depreciation and amortization                 1,406         1,071         1,675
 Equity interest in loss of affiliate            506           384           175
 Deferred income taxes                          (96)       (1,368)         (491)
Changes in working capital of continuing
   operations, net of acquisitions:
 Receivables                                 (3,739)         (486)         1,193
 Inventories                                 (2,213)         (105)       (1,333)
 Accounts payable and accrued expenses         1,069         1,452         1,041
 Other                                           886         (136)       (1,132)
                                          -----------    ----------    ---------
Net cash provided by operating activities       
 of continuing operations                      2,430         3,327         4,103

Cash flows from investing activities:
 Investment in and loans to affiliate        (2,292)       (3,645)             -
 Proceeds from sale of  automotive  
   accessories segment                         1,124             -             -
 Investment in note receivable               (3,200)             -             -
 Payments for acquisitions                         -             -       (1,220)
 Payments for property, plant and equipment  (2,685)         (675)         (578)
                                          -----------    ----------    ---------
Net cash used for investing activities of  
 continuing operations                       (7,053)       (4,320)       (1,798)

Cash flows from financing activities:
 Proceeds from  long-term debt and capital    
   lease obligations                           4,201        16,681         6,000
 Repayments of long-term debt and capital
   lease obligations                         (2,032)      (20,631)         (443)
 Proceeds from sale/leaseback            
   transaction                                     -         4,274             -
 Proceeds from issuance of common stock           62             -           235
 Repurchase of common stock                        -             -         (540)
 Preferred dividends                           (270)             -             -
 Issuance of preferred stock                   7,337             -             -
                                          -----------    ----------    ---------
Net cash provided by financing activities 
 of continuing operations                      9,298           324         5,252

Net cash used in discontinued operations     (4,094)          (10)       (7,831)

Net increase (decrease) in cash and cash         
  equivalents                                    581         (679)         (274)

Cash and cash equivalents at beginning of        
  period                                         700         1,379         1,653
                                          -----------    ----------    ---------
Cash and cash equivalents at end of         
  period                                    $  1,281      $    700      $  1,379
                                          ===========    ==========    =========

Supplemental disclosure of cash flow information:
 Interest paid                              $  2,189      $  2,275      $  1,800
 Income taxes paid, net of refund           $     90      $  (424)         1,200
                                          ===========    ==========    =========

The non-cash activity related to the Company's  investing  activity is described
in notes 4 and 11, non-cash activity related to the Company's financing activity
is  described  in  note  5,  and  non-cash  activity  related  to  the  Company'
acquisitions is described in note 16.

        The accompanying notes are an integral part of these statements.


                                       21
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 1. Summary of Operations
-----------------------------

Williams  Controls,  Inc,  including  its  wholly-owned  subsidiaries,  Williams
Controls Industries, Inc. ("Williams");  Aptek Williams, Inc. ("Aptek"); Premier
Plastic Technologies,  Inc. ("PPT");  Williams Automotive,  Inc.; GeoFocus, Inc.
("GeoFocus");   NESC  Williams,  Inc.  ("NESC");  Williams  Technologies,   Inc.
("Technologies");  Williams  World Trade,  Inc.  ("WWT");  Kenco/Williams,  Inc.
("Kenco");  Techwood Williams, Inc. ("TWI");  Agrotec Williams, Inc. ("Agrotec")
and its 80% owned  subsidiaries  Hardee Williams,  Inc.  ("Hardee") and Waccamaw
Wheel  Williams,  Inc.  ("Waccamaw")  is herein  referred to as the "Company" or
"Registrant". The subsidiaries are detailed as follows:

Vehicle Components
------------------

Williams  Controls  Industries,   Inc.:  Manufactures  vehicle  components  sold
primarily in the transportation industry.
--------------------------------------------------------------------------------

Premier Plastic  Technologies,  Inc.:  Manufactures  plastic  components for the
automotive industry and manufactures  prototype and production molds using rapid
prototyping processes.


NESC  Williams,  Inc.:  Installs  conversion  kits  to  allow  vehicles  to  use
compressed natural gas and provides natural gas well metering services.


Williams  Automotive,  Inc.:  Markets the Company's  products to the  automotive
industry.


Electrical Components and GPS
-----------------------------

Aptek  Williams,  Inc.:  Develops and  produces  sensors,  microcircuits,  cable
assemblies  and other  electronic  products for the  telecommunications  and the
transportation  industry,  and conducts  research and development  activities to
develop commercial  applications of sensor related products for the subsidiaries
of the Company.


GeoFocus,  Inc.: Develops train tracking and cyber-farming  systems using global
positioning systems ("GPS") and geographical information systems ("GIS").


Agricultural  Equipment 
------------------------

The subsidiaries  comprising the Agricultural  Equipment segment are reported as
discontinued operations.

Agrotec Williams,  Inc.:  Manufactures  spraying  equipment for the professional
lawn care and nursery and pest control industries.


Hardee Williams,  Inc.: Manufactures equipment used in farming, highway and park
maintenance.


Waccamaw Wheel Williams,  Inc.:  Manufactures solid rubber tail wheels and other
rubber  products,  used on agricultural  equipment,  from recycled truck and bus
tires.


Techwood Williams,  Inc.:  Manufactured and distributed commercial wood chippers
used in landscaping  and farming.  Techwood ceased  manufacturing  operations in
fiscal 1997.


                                       22
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Automotive Accessories
----------------------
Kenco/Williams,  Inc.: Manufactures,  assembles,  packages and distributes truck
and auto accessories for the after market parts industries. Kenco is reported as
a discontinued operation.



Other Subsidiaries
------------------
Williams  Technologies,  Inc.:  Supports  all  subsidiaries  of the  Company  by
providing   research  and   development   and  developing   strategic   business
relationships to promote "technology partnering."

Williams  World Trade,  Inc.:  Located in Kuala  Lumpur,  Malaysia,  WWT manages
foreign  sourcing for  subsidiaries  of the Company,  affiliates and third party
customers.



Note 2. Significant Accounting Policies
---------------------------------------

Principles of Consolidation - The consolidated  financial statements include all
of the accounts of Williams Controls,  Inc. and its majority owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents - All short-term highly liquid  investments  purchased
with  maturity  at purchase of three  months or less are  considered  to be cash
equivalents.

Inventories - Inventories are valued at the lower of cost (first-in,  first-out)
or market.

Property,  Plant and Equipment - Land, buildings,  equipment and improvements to
existing  facilities are recorded at cost.  Maintenance and repairs are expensed
as incurred.  Depreciation has been computed using the straight-line method over
the estimated useful lives of property and equipment as follows:  buildings 31.5
years, furniture,  machinery and equipment 3 to 12 years. Capitalized leases are
amortized  using the same method over the shorter of the estimated  useful lives
or the lease term.

Goodwill  - The excess of cost over net assets of  acquired  companies  is being
amortized using the straight-line method over periods not exceeding 40 years. At
each  balance  sheet  date,  management  assesses  whether  there  has  been  an
impairment  in the carrying  value of cost in excess of net assets of businesses
acquired,  primarily by comparing current and projected sales,  operating income
and annual  cash  flows,  on an  undiscounted  basis,  with the  related  annual
amortization expenses as well as considering the equity of such companies.

Concentration of Risk - The Company invests a portion of its excess cash in debt
instruments  of  financial  institutions  with  strong  credit  ratings  and has
established  guidelines relative to diversification and maturities that maintain
safety and  liquidity.  The Company has not  experienced  any losses on its cash
equivalents.

The Company sells its products to customers in diversified industries worldwide;
however,  approximately  94% of its  sales  from  continuing  operations  are to
customers in the Vehicle Components segment.  Approximately 63% of the Company's
sales from continuing operations are electronic throttle controls ("ETC").

For the years ended  September 30, 1998, 1997 and 1996,  Freightliner  accounted
for 21%,  16% and  17%,  Navistar  accounted  for 16%,  16% and 13%,  and  Volvo
accounted  for  9%,  8%  and  10%  of  net  sales  from  continuing   operations
respectively.  Approximately  15%,  14% and  19% of net  sales  from  continuing
operations  in fiscal  1998,  1997 and  1996,  respectively,  were to  customers
outside of the United States,  primarily in Canada,  and, to a lesser extent, in
Europe and Australia. See note 13 of Notes to Consolidated Financial Statements.


                                       23
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Debt  Issuance  Costs - Costs  incurred in the  issuance of debt  financing  are
amortized over the term of the debt agreement.

Product Warranty - The Company provides a warranty covering defects arising from
products sold.  The warranty is limited to a specified  time period,  mileage or
hours of use, and varies by product and application.  The Company has provided a
reserve,  which in the opinion of  management is adequate to cover such warranty
costs.

Research and Development  Costs - Research and development costs are expensed as
incurred.

Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax  consequences  attributable to differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets  and  liabilities  of  a  change  in  tax  rates  is  recognized  in  the
consolidated  statement of  operations in the period that includes the enactment
date.

Post-retirement  Benefits - Statement of Financial Accounting Standards ("SFAS")
No.  106,  "Employers'  Accounting  for  Post  Retirement  Benefits  Other  than
Pensions"  requires the Company to accrue  retiree  insurance  benefits over the
period  in which  employees  become  eligible  for such  benefits.  The  Company
implemented  SFAS No. 106 by amortizing  the transition  obligation  over twenty
years.

Earnings per Share - Beginning in the Company's fiscal year ending September 30,
1998,  basic  earnings  per share  ("EPS") and  diluted  EPS are  required to be
computed  using the methods  prescribed  by Statement  of  Financial  Accounting
Standards  ("SFAS") No. 128, "Earnings per Share." Basic EPS is calculated using
the weighted  average  number of common  shares  outstanding  for the period and
diluted EPS is calculated using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Prior year EPS have been restated
to conform with SFAS No.
128.




                                       24
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------


Following  is a  reconciliation  of basic EPS and  diluted  EPS from  continuing
operations:

<TABLE>
<CAPTION>
<S>                            <C>            <C>          <C>                <C>        <C>             <C>


                                            Year Ended                                    Year Ended
                                        September 30, 1998                            September 30, 1997
                                 ----------------------------------           -----------------------------------
                                                             Per                                            Per
                                                            Share                                          Share
                                 Income        Shares       Amount             Income       Shares         Amount
                                 ------        ------       ------             ------       ------        -------

Income from continuing
   Operations                        $4,611                                     $2,515
Less- Preferred stock dividends       (270)                                          -
                                 -----------                                  ---------
Basic EPS-
   Income available to common
      Shareholders                    4,341   17,922,558     $0.24               2,515     17,656,900      $0.14
                                                             -----                                         -----
Effect of dilutive securities-
   Stock options and warrants             -      564,766                             -        344,899
   Convertible preferred stock          270    1,321,136                             -              -
                                 ----------- ------------                     --------- --------------
Diluted EPS-
   Income available to common
      Shareholders                   $4,611   19,808,460     $0.23              $2,515     18,001,799      $0.14
                                     ------   ----------     -----              ------     ----------      -----




                                              Year Ended
                                          September 30, 1996
                                  ------------------------------------
                                                                Per
                                                               Share
                                   Income         Shares       Amount
                                   ------         ------       ------
Income from continuing
   Operations                        $2,975
Less- Preferred stock                     -
dividends
                                  ----------
Basic EPS-
   Income available to common
      Shareholders                    2,975     17,186,646      $0.18
                                                                -----
Effect of dilutive
securities-                               -        275,239
   Stock options and warrants             -              -
   Convertible preferred
stock
                                  ---------- --------------
Diluted EPS-
   Income available to common
      Shareholders                   $2,975     17,461,885      $0.17
                                     ------     ----------      -----

</TABLE>


At  September  30,  1998,  1997 and 1996,  the Company had options and  warrants
covering  582,236,  336,600 and 288,600  shares,  respectively  of the Company's
common stock outstanding that were not considered in the respective  diluted EPS
calculations since they would have been antidilutive.



                                       25
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------


Reclassifications  - Certain  amounts  previously  reported in the 1996 and 1997
financial  statements  have  been  reclassified  to  conform  to 1998  financial
statement classifications.

Fair Value of  Financial  Instruments  - The  carrying  values of the  Company's
current assets and liabilities  approximate fair values primarily because of the
short maturity of these instruments.  The fair values of the Company's long-term
debt  approximated  its  carrying  values  based on  borrowing  rates  currently
available  to the  Company  for loans  with  similar  terms.  The fair  value of
preferred stock and receivables from an affiliate is not practicable to estimate
due to the related party nature of the underlying transaction.

Stock-Based   Compensation  -  SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation,"  ("SFAS 123") allows  companies to choose  whether to account for
stock-based  compensation on a fair value method, or to continue  accounting for
such  compensation  under the method  prescribed in Accounting  Principles Board
Opinion No. 25,  "Accounting  for Stock  Issued to  Employees"  ("APB 25").  The
Company has chosen to continue to account for stock-based compensation using APB
25 (see Note 9).

Recent FASB Pronouncements - The Financial  Accounting  Standards Board ("FASB")
recently  issued SFAS No.'s 130 and 131,  "Reporting  Comprehensive  Income" and
"Disclosures   about  Segments  of  an  Enterprise  and  Related   Information,"
respectively.  Both of these statements are effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes requirements for disclosure of
comprehensive income which includes certain items previously not included in the
statement of income including minimum pension liability  adjustments and foreign
currency  translation  adjustments,  among others.  Reclassification  of earlier
financial statements for comparative purposes is required.  SFAS No. 131 revises
existing  standards  for  reporting  information  about  operating  segments and
requires the reporting of selected  information  in interim  financial  reports.
SFAS No. 131 also establishes  standards for related  disclosures about products
and services,  geographic areas, and major customers.  Management  believes that
implementation  of SFAS  No.  130 and No.  131 will not  materially  affect  the
Company's financial statements.

In June 1998 the FASB issued  Statement of Financial  Accounting  Standards  No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133  establishes  accounting  and reporting  standards  for all  derivative
instruments.  SFAS 133 is effective  for fiscal years  beginning  after June 15,
1999. The Company does not have any derivative instruments and accordingly,  the
adoption of SFAS 133 will not impact the Company's financial position or results
of operations.


Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and  expenses  during the  reporting  periods.  Management  makes these
estimates  using the best  information  available at the time the  estimates are
made; however, actual results could differ materially from these estimates.



                                       26
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 3. Inventories
-------------------

Inventories consisted of the following at September 30:

                                                     1998               1997
                                                     ----               ----
           Raw material                            $   5,152          $  2,958
           Work in process                             1,333             1,799
           Finished goods                              4,208             6,429
                                                 ------------       ------------
                                                   $  10,693          $ 11,186
                                                 ============       ============


Finished goods include component parts and finished product ready for shipment.


Note 4. Investment in and Receivables from Affiliate
----------------------------------------------------

At September 30, 1998 the Company had an investment in and notes receivable from
Ajay  Sports,  Inc.  ("Ajay")  in the  amount of $6,640,  including  a $500 note
receivable  reflected  as a  reduction  in the  Company's  shareholders'  equity
relating to the  issuance of 206,719  shares of the  Company's  common  stock to
Ajay. Ajay  manufactures  and distributes  golf  accessories and outdoor leisure
furniture  primarily  to retailers  in the United  States.  The Company also has
manufacturing  rights in certain Ajay  facilities  through  2002,  under a joint
venture agreement.

The Company's  investment in and note receivable from affiliate at September 30,
1998 is comprised of an investment in common and preferred  stock of Ajay in the
amount of $53 and $5,000,  respectively  and a secured  note  receivable  in the
amount of $1,087. In addition, the Company could be obligated to advance to Ajay
up to an additional $2,015 under the terms of an Intercreditor  Agreement with a
prior  bank.  The  chairman  of the  Company  has  provided a  guarantee  of the
investments  in and loans to Ajay.  At September  30,  1997,  the Company had an
investment in Ajay common stock in the amount of $559 and a receivable from Ajay
in the amount of $3,645.

Prior to July 11,  1997,  the  Company  had  guaranteed  Ajay's  $13,500  credit
facility and charged Ajay a fee of 1/2 of 1% per annum on the  outstanding  loan
amount for providing  this  guaranty.  From July 11, 1997 through June 30, 1998,
the Company and Ajay had a joint and several loan  obligation to a bank. On June
30,  1998,  the  Company   restructured   its  investment  in  Ajay  (the  "Ajay
Restructuring".)  The  objective  of the Ajay  Restructuring  is to separate the
Company's and Ajay's  financing,  eliminate Ajay's dependency on the Company for
capital and provide Ajay with adequate  working  capital to grow its  operations
and improve shareholder value which would benefit the Company. The restructuring
provides Ajay three years to improve  shareholder  value at which time the notes
receivable  become due and payable.  No dividends are accrued and payable on the
preferred  stock  through July 31,  2001.  The  preferred  stock  dividend  rate
increases  to an  annual  rate of 17% in 2001 and 24% in 2002,  rates  which the
Company  believes would require Ajay to raise capital from new sources to redeem
the preferred stock.

As a  result  of  the  Ajay  Restructuring,  the  bank  provided  separate  loan
facilities  to the  Company  and  Ajay.  As  consideration  to the  bank for the
separate loan facilities, the Company provided Ajay $2,000 in additional capital
during 1998 which included the purchase of Ajay notes payable of $948 previously
provided by affiliated  parties of the Company,  and agreed to convert $5,000 of
advances  to  Ajay  into  a new  cumulative  convertible  preferred  stock.  The
preferred stock is convertible into 3,333,333 shares of Ajay common stock.

The  secured  promissory  notes  bear an  annual  interest  rate of 16%  payable
monthly. In addition,  Ajay has agreed to pay the Company annual  administrative
fees of $90,000  and a  management  fee for  sourcing  products  overseas in the
amount of $80,000 annually.



                                       27
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

The  Company  owns  686,274  shares of  common  stock in Ajay  which  represents
approximately 18% of Ajay's outstanding common stock. The investment is recorded
on the equity method of accounting  due to the common  ownership of Ajay and the
Company by the chairman of the Company who is also the chairman of Ajay. For the
three years ended September 30, 1998, 1997 and 1996, the Company reported losses
on its investment in Ajay in the amount of $506, $384 and $175, respectively. In
addition,  the company has options to purchase  1,851,812 shares of common stock
at an exercise  price of $1.08.  The investment in Ajay common stock is recorded
as an  investment  in affiliate  in the  Consolidated  Balance  Sheet net of the
Company's equity interest in Ajay's losses since acquisition

Based upon the closing bid price,  the market  value of the  investment  in Ajay
common shares was approximately $494 at September 30, 1998.

Following is a summary of condensed unaudited  financial  information of Ajay as
of and for the twelve months ended September 30, 1998, 1997 and 1996:

                                       1998            1997             1996
                                       ----            ----             ----
                                    (unaudited)     (unaudited)      (unaudited)


  Current assets                      $  9,584       $ 14,264         $ 13,951
  Other assets                           4,212          4,449            4,101
                                      --------       --------         --------
                                      $ 13,796       $ 18,713         $ 18,052
                                      ========       ========         ========

  Current liabilities                 $  2,030       $  5,031         $ 14,207
  Other liabilities                      8,003         12,061               17
  Common and preferred shareholders'     
     equity                              3,763          1,621            3,828
                                      --------       --------         --------
                                      $ 13,796       $ 18,713         $ 18,052
                                      ========       ========         ========

  Net sales                           $ 27,094       $ 29,063         $ 24,669
                                      ========       ========         ========
  Gross margin                        $  3,581       $  3,772         $  4,412
                                      ========       ========         ========
  Net loss                            $(2,858)       $ (2,133)        $   (985)
                                      ========       ========         ========


At  September  30,  1998,  Ajay  had   approximately   3,957,000  common  shares
outstanding.  In addition to the  Company's  options and  convertible  preferred
stock at  September  30,  1998,  Ajay had  approximately  $4,272 of  outstanding
preferred stock that is convertible to  approximately  1,798,000  shares of Ajay
common  stock and  outstanding  options and  warrants to purchase  approximately
946,000  shares of Ajay common  stock at prices  ranging from $1.08 to $6.00 per
share  (unaudited).  An  officer of Ajay  provided  management  services  to the
company as an officer of the Company.  Ajay was reimbursed  approximately $95 in
total  for his  1998 and  1997  time and  services.  The  Company  accepted  the
officer's  resignation  in December  1998.



                                       28
<PAGE>

Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 5. Financing Arrangements
------------------------------

Long-Term Debt - On June 30, 1998, the Company  restructured its credit facility
with a bank (the  "Bank") to consist of a  revolving  credit  facility  of up to
$16,500,  a $3,100 term loan and a $2,700 real estate loan.  Under the revolver,
the Company can borrow up to $16,500  based upon a borrowing  base  availability
calculated  using  specified  percentages  of eligible  accounts  receivable and
inventory.  The  revolver  bears  interest  at the Bank's  prime rate  (8.25% at
September  30, 1998.) The real estate and term loans bear interest at the Bank's
prime rate plus .25%. At the Company's  option,  the Company may borrow funds at
the London  InterBank  Offering Rate ("Libor")  plus 2.25%.  The loans mature on
July 11, 2001 and are secured by substantially all of the assets of the Company.
The real estate term loan is being amortized over twenty years and the term loan
is being amortized over seven years with all remaining principal outstanding due
at July 11, 2001.

The loan agreement  prohibits payment of dividends by the Company except for the
Series A Preferred  dividend,  and  requires  the  Company to  maintain  minimum
working  capital of $12,000  and minimum  tangible  net worth,  as  defined,  of
$18,000.  The loan also  prohibits  additional  indebtedness  and  common  stock
repurchases,  and  restricts  capital  expenditures  to an amount  not to exceed
$6,000  for the two years  ended  September  30,  1999 and not to exceed  $2,500
annually thereafter.  In addition,  the loan limits incremental  operating lease
obligations  to $600 annually.  Fees under the loan agreement  include an unused
revolver fee of .25% and a prepayment  penalty fee declining  from 3% in 1998 to
 .5% in the year 2001.  The  prepayment  fee is waived if the loan is repaid with
proceeds from the sale of assets or is refinanced with an affiliate of the Bank.
At September 30, 1998, the Bank waived  compliance with the capital  expenditure
limitation which the Company had exceeded during fiscal 1998.

From July 11, 1997 through  June 30, 1998,  the Company and Ajay had a joint and
several  loan with the  Bank.  Under the  restructured  facility,  all joint and
several  liability,  cross  collateral  agreements and guarantees of the Company
with  respect  to  the  Ajay  portion  of  the  credit  facility  prior  to  the
restructuring  have  been  terminated.  In  consideration  to the  Bank  for the
restructured  facility,  the Company agreed to invest $2,000 in Ajay and convert
$5,000 of advances to Ajay into preferred stock.

Prior to July 11, 1997,  the Company had guaranteed the bank debt of Ajay with a
previous  lender  which debt was in default  under  Ajay's loan  agreement.  The
Company and Ajay refinanced their bank debt on July 11, 1997 with the Bank under
a $34,088 three-year  revolving joint and several liability credit and term loan
agreement.  As a result of a  shortfall  in  Ajay's  available  collateral,  the
previous  lender   provided  bridge   financing  of  $2,340  to  Ajay  under  an
intercreditor  agreement. The bridge loan is to be repaid from any proceeds from
the sale of Kenco,  the sale of other  assets,  from a specified  percentage  of
future Ajay and Company cash flow and from monthly  principal  payments by Ajay.
The Balance of the bridge loan was $2,015 at September 30, 1998.




                                       29
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                              <C>                 <C>


The Company's long-term debt consists of the following:                               1998               1997
                                                                                      ----               ----
Bank  revolving  credit  facility due on July 11, 2001;  $5,686 bearing            $13,686             $ 9,498
interest  at prime rate  (8.25% at  September  30,  1998) and $8,000 at
variable  interest  rates (7.94% - 8.0% at  September  30,  1998).  The
1997  credit  facility  which bore  interest at the prime rate plus .5%
was restructured in 1998.

Bank Term Loan I, due on July 11, 2001,  variable interest rate 8.5% at              3,011               3,818
September  30, 1998,  payable in monthly  installments  of $42,  with a
remaining  balance  due of  $1,583  at  maturity.  The  1997  loan  was
refinanced in 1998 with the restructured credit facility.

Bank Term Loan II,   repaid on June 30, 1998                                             -                 958

Real Estate loan, due on July 11, 2001,  variable interest rate 8.5% at              2,514               2,647
September  30, 1998,  payable in monthly  installments  of $11,  with a
remaining  balance  due of  $2,140  at  maturity.  The  1997  loan  was
refinanced in 1998 with the restructured credit facility.

Sale and leaseback  financing,  due in 2003,  interest  payable monthly              4,600               4,526
at 9.75%

Mortgage  loan,  due in 2003,  payable in monthly  installments  of $21              1,020               1,178
including interest (8.8% at September 30, 1998)


Other                                                                                   50                  37
                                                                                   -------             -------      
                                                                                    24,881              22,662
     Less current portion                                                              847               1,427
                                                                                   -------             -------      
                                                                                   $24,034             $21,235
                                                                                   =======             =======


Maturities of long-term debt are as follows:

   1999                                                                            $   847
   2000                                                                                837
   2001                                                                             18,146
   2002                                                                              4,826
   2003                                                                                225
                                                                                   -------
                                                                                   $24,881
                                                                                   =======
</TABLE>


                                       30
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Capital Leases- The Company has acquired certain assets, primarily machinery and
equipment,  through capital leases.  The leases have terms ranging from three to
seven years, and are payable in monthly and quarterly installments with interest
(at rates ranging from 8.52% to 11.7%).

Future  minimum lease payments under capital leases are as follows for the years
ending September 30:

                           1999                                          $718
                           2000                                           954
                           2001                                           946
                           2002                                         1,051
                           2003                                           730
                     Thereafter                                         1,131
                                                                       ------   
Total future minimum lease payments                                     5,530

Less- Amount representing interest                                      1,384
                                                                       ------   
Present value of future minimum lease payments                          4,146

Less - Current portion                                                    334
                                                                       ------
                                                                       $3,812
                                                                       ======
Note 6. Pension Plans

The Company maintains two pension plans; one plan covers the salaried  employees
and the other plan covers the Company's  hourly  employees.  Annual net periodic
pension costs under the pension plans are determined on an actuarial  basis. The
Company's  policy is to fund these costs  accrued over 15 years and  obligations
arising  due to plan  amendments  over the  period  benefited.  The  assets  and
liabilities are adjusted annually based on actuarial  results.  Net pension cost
is computed as follows for the years ending September 30:



                                           1998          1997           1996
                                           ----          ----           ----

           Service cost                    $234          $227           $226
           Interest cost                    479           451            450
           Actual return on plan assets    (580)         (476)          (477)
           Other components                  29            21             21
                                           ----          ----           ----
                                           $162          $223           $220
                                           ====          ====           ====


The expected  long-term rate of return on plan assets is 9.0%. The discount rate
and rate of  increase in future  compensation  levels  used in  determining  the
actuarial present value of projected  benefit  obligations was 6.75% and 4.0% in
1998,  7.5%  and 5.0% in 1997,  and  8.0% and 5.0% in 1996,  respectively.  Plan
assets consist substantially of equity and fixed income securities.


                                       31
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

SFAS No. 87  requires  recognition  in the  balance  sheet of a minimum  pension
liability for underfunded  plans. The minimum  liability that must be recognized
is equal to the excess of the  accumulated  benefit  obligation over plan assets
and accrued pension cost. At September 30, 1998 and 1997 the additional  minimum
liability  recognized  for the  Company's  underfunded  plan  was  $631  and $0,
respectively. The additional minimum pension liability resulted in a decrease in
shareholders'  equity, net of tax benefit,  of $184, which represents the excess
of the minimum pension liability over unamortized prior service costs.


The funded status as of September 30 is as follows:

                                                       Salaried        Hourly
                                                       Employees      Employees
              1998                                        Plan          Plan
              ----                                     ---------      ---------

     Actuarial present value of vested benefits          $2,999         $3,356
     Actuarial present value of non-vested benefits          63            259
                                                       ---------      ---------
     Accumulated benefits obligation                     $3,062         $3,615
                                                       =========      =========

     Actuarial present value of projected benefits 
        obligation                                      $(3,300)       $(3,792)
     Plan assets at fair market value                     2,916          3,180
                                                       ---------      ---------
     Funded status                                      $  (384)       $  (612)
                                                       =========      =========

     Unrecognized net losses                            $ (303)        $  (475)
     Prior service costs                                   126            (333)
     Prepaid (accrued) pension cost                       (207)            196
                                                       ---------      ---------
     Funded status                                      $ (384)        $  (612)
                                                       =========      =========

                                                       Salaried        Hourly
                                                       Employees      Employees
              1998                                        Plan          Plan
              ----                                     ---------      ---------
     Actuarial present value of vested benefits         $ 2,418       $ 2,792
     Actuarial present value of non-vested benefits         112           534
                                                       ---------      ---------

     Accumulated benefits obligation                    $ 2,530       $ 3,326
                                                       =========      =========

     Actuarial present value of projected benefits      
        obligation                                      $(2,901)      $(3,606)
     Plan assets at fair market value                     3,091         3,379
                                                       ---------      ---------
     Funded status                                      $  190        $  (227)
                                                       =========      =========

     Unrecognized net (losses) gain                     $  226        $   (99)
     Prior service costs                                   138           (374)
     Prepaid (accrued) pension cost                       (174)           246
                                                       ---------      ---------
     Funded status                                      $  190        $  (227)
                                                       =========      =========



                                       32
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 7. Property, Plant and Equipment
-------------------------------------

At September 30, 1998 and 1997,  property,  plant and  equipment  consist of the
following:

                                                  1998               1997
                                                  ----               ----

           Land and land improvements           $  2,695          $  2,705
           Buildings                               8,748             7,777
           Machinery and equipment                12,099             7,888
           Office furniture and equipment          3,255             1,580
                                                --------          --------
                                                  26,797            19,950

           Less accumulated depreciation          (6,784)           (5,417)
                                                --------          --------
                                                $ 20,013          $ 14,533
                                                ========          ========

Net  property,  plant and equipment of $20,013 and $14,533 at September 30, 1998
and  1997,  respectively,  excludes  certain  machinery,  equipment  and  office
equipment held for disposition. Machinery and equipment and office furniture and
equipment  under capital  leases are included  above and were $5,200 and $512 at
September 30, 1998 and 1997,  respectively.  Accumulated  depreciation on assets
under  capital  leases  was $542  and  $217 at  September  30,  1998  and  1997,
respectively.



Note 8. Income Taxes (Benefit)
------------------------------

The  provision  for income  taxes  (benefit)  is as follows for the years ending
September 30:

                                        1998             1997            1996
                                        ----             ----            ----
           Continuing operations:
              Current                 $  2,462          $ 3,610         $ 2,426
              Deferred                     (96)          (1,368)           (491)
                                      ---------         --------        --------
                                         2,366            2,242           1,935

           Discontinued operations      (2,932)          (3,208)         (2,315)
                                      ---------         --------        --------
                                      $   (566)         $  (966)        $  (380)
                                      =========         ========        ========


The reconciliation  between the effective tax rate and the statutory federal tax
rate on earnings from continuing operations as a percent is as follows:



                                        1998             1997            1996
                                        ----             ----            ----
           Statutory federal income 
              tax rate                  34.0             34.0            34.0
           State taxes, net of federal 
              income tax benefit tax     4.0              4.0             4.0
           Credits for state income
              tax refunds               (8.4)               -               -
           Effect of change in 
              valuation allowance        3.2              7.4               -
           Other                         1.1              1.7             1.4
                                        ----             ----            ----
                                        33.9             47.1            39.4
                                        ====             ====            ====




                                       33
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities  at September  30, 1998
and 1997 are as follows:



                                                        1998        1997
                                                        ----        ----
           Deferred tax assets:
           Inventories, due to obsolescence
              reserve and additional costs
              inventoried for tax purposes
              pursuant to the Tax Reform
              Act of 1986                             $  203      $  260


           Warranty reserves                             313         171
           Accrual for compensated absences              125         145
           Accrual for retiree medical benefits          522         383
           Accounts receivable reserves                  117         138
           Estimated loss on disposal                  1,266         189
           Equity interest in loss on affiliate          517         320
           Tax gain on sale/leaseback                    628         659
           Accrued other reserves                         12         144
           Pension liability adjustment                  114           -
           State net operating loss
              carryforwards                              873         727
                                                      ------      ------
           Total gross deferred tax assets             4,690       3,136
           Less valuation allowance                      840         620
                                                      ------      ------
           Net deferred tax assets                     3,850       2,516
                                                      ======      ======

           Deferred tax liabilities:
              Plant and equipment, principally
                 due to differences in
                 depreciation and amortization         1,588       1,485
           Intangible asset recorded for books            58           -
                                                      ------      ------
           Net deferred income tax assets             $2,204      $1,031
                                                      ======      ======

           Current deferred income tax assets         $2,069      $1,098
           Long-term deferred income tax assets        1,781       1,418
           Long-term deferred income tax
               liabilities                           (1,646)     (1,485)
                                                      ------      ------
                                                      $2,204     $ 1,031
                                                      ======      ======






At  September  30,  1998,  the  Company has  approximately  $14,900 of state net
operating  loss carry  forwards,  which are  available to the Company in certain
state tax  jurisdictions  and expire in 2006 through 2012. During the year ended
September  30, 1998,  the Company  increased  its  valuation  allowance  against
certain state net operating loss carryforwards it does not expect to utilize.



                                       34
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 9. Shareholders' Equity
----------------------------


Preferred Stock - On April 21, 1998, the Company  completed a private  placement
of 80,000 shares of Series A convertible  redeemable preferred stock at $100 per
share,  or $8,000 in gross  proceeds and  received  net proceeds of $7,337.  The
preferred stock bears a dividend rate of 7.5%, which is payable  quarterly,  and
is  convertible  at the  option  of the  holder  into  2,909,091  shares  of the
Company's  common  stock.  The  preferred  stock is  redeemable at the Company's
option  anytime after April 21, 2001 at $100 per share.  The preferred  stock is
not mandatorily redeemable. In addition, the Company can force conversion of the
preferred  stock into common shares if the  Company's  common stock trades at or
above $4.125 for twenty out of thirty  consecutive  trading days. Holders of the
Series A preferred  stock are  entitled to a number of votes equal to those they
would have assuming  conversion  into common stock,  without taking into account
fractional  shares.  In connection  with the private  placement,  and as partial
compensation for services, the Company issued to the placement agent warrants to
purchase  203,637  shares of the Company's  common stock at an exercise price of
$3.30 per share.

Commencing with the quarterly period beginning July 1, 2001, the annual dividend
rate will  increase  each  quarter by 2.5% up to a maximum  dividend  of 24% per
annum.  The Company used the proceeds of the offering to provide  $3,200 of debt
financing  to the  purchaser of the  Portland,  Oregon  manufacturing  facility,
repayment of a bank term loan of $667 and an investment  of $1,500 in Ajay.  The
remaining balance was used for general working capital purposes.


Stock  Options and Warrants - The Company has issued stock  options and warrants
at exercise  prices ranging from $.34 - 3.63 per share,  the market value at the
date of issuance. These options and warrants expire between 1998 and 2000.
This stock option activity during the periods indicated are as follows:

                                                     Shares
                                                   Subject to
                                                     Options      Option Prices
                                                   ----------     -------------

           Outstanding at September 30, 1995          795,000      $.34 - 3.63

           Granted                                          -                -
           Exercised                                (455,000)              .52
           Canceled                                             
                                                            -                -
                                                   ----------     -------------
           Outstanding at September 30, 1996          340,000       .41 - 3.63

           Granted                                          -                -
           Exercised                                        -                -
           Canceled                                             
                                                            -                -
                                                   ----------     -------------
           Outstanding at September 30, 1997          340,000       .41 - 3.63

           Granted                                          -                -
           Exercised                                (150,000)              .41
           Canceled                                         -                -
                                                   ----------     -------------
           Outstanding at September 30, 1998          190,000      $.41 - 3.63
                                                   ==========     =============

            
During the year ended  September 30, 1997,  the Company  extended the expiration
date of 150,000  options held by Acrodyne  Corporation,  a related  party,  from
November 8, 1997 to November 8, 1999.



                                       35
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------


In  addition  to the  stock  options  noted  above,  the  Company  has two other
qualified  stock option  plans.  The Company  adopted the 1993 Stock Option Plan
("the 1993  Plan")  which  reserves  an  aggregate  of  1,500,000  shares of the
Company's common stock for the issuance of stock options which may be granted to
employees,  officers and directors of and consultants to the Company.  Under the
terms of the 1993 Plan,  the  Company  may grant  "incentive  stock  options" or
"non-qualified  options" at not less than the fair  market  value on the date of
grant.  Options  granted under the 1993 Plan are exercisable as to 25 percent of
the shares covered  thereby  commencing six months after the earlier of the date
of grant or the date of employment,  and as to an additional 25%,  cumulatively,
on the first,  second and third  anniversaries  of the date of grant, and expire
ten years  after the date of grant.  In January  1998 the  Company  reserved  an
additional  1,500,000  shares of the Company's  common stock for the issuance of
stock  options  under the 1993 Plan.  At  September  30,  1998,  the Company had
901,875 shares  available for future grants.  Stock option  activity  during the
periods indicated under the 1993 Plan are as follows:

                                          Shares        Shares
                                        Available     Subject to
                                           for          Options    Option Prices
                                          Grant
                                       -----------    ---------    -------------

   Outstanding at September 30, 1995     1,032,000      468,000    $1.63 - $3.23

   Granted                                       -            -                -
   Exercised                                     -            -                -
   Canceled                                 68,000     (68,000)      1.94 - 3.63
                                       -----------    ---------    -------------
   Outstanding at September 30, 1996     1,100,000      400,000      1.94 - 3.63

   Granted                             (1,078,800)    1,078,800      1.94 - 2.63
   Exercised                                                  -                -
   Canceled                                366,925    (366,925)      1.94 - 3.63
                                       -----------    ---------    -------------
   Outstanding at September 30, 1997       388,125    1,111,875      1.94 - 3.63

   Additional shares reserved            1,500,000            -                -
   Granted                             (1,104,225)    1,104,225      2.31 - 3.00
   Exercised                                     -            -                -
   Canceled                                117,975    (117,975)      1.94 - 2.94
                                       -----------    ---------    -------------
   Outstanding at September 30, 1998       901,875    2,098,125    $1.94 - $3.63
                                       ===========    =========    =============

During 1996 the  shareholders of the Company  approved a stock option plan which
reserves an aggregate of 200,000 shares of the Company's stock for  non-employee
Directors of the Company (the "1995 Plan"). The 1995 Plan provides for automatic
granting  of 10,000  options to each  non-employee  director of the Company at a
price  equal to the market  value on the date of grant  which is the date of the
annual shareholders' meeting each year,  exercisable for 10 years after the date
of the grant.  These options are  exercisable as to 25% of the shares thereby on
the date of grant and as to an additional 25%, cumulatively on the first, second
and third  anniversaries  of the date of grant. At September 30, 1998 there were
80,000 shares available for grant under the 1995 Plan.



                                       36
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Stock option  activity  during the periods  indicated under the 1995 Plan are as
follows:

                                          Shares        Shares
                                        Available     Subject to
                                           for          Options    Option Prices
                                          Grant
                                       -----------    ---------    -------------
   Outstanding at September 30, 1995     170,000        30,000            $3.66


   Granted                              (30,000)        30,000             3.63
   Exercised                                   -             -                -
   Canceled                                    -             -                -
                                       -----------    ---------    -------------
   Outstanding at September 30, 1996     140,000        60,000        3.63-3.66


   Granted                              (30,000)        30,000             2.66
   Exercised                                   -             -                -
   Canceled                                    -             -                -
                                       -----------    ---------    -------------
   Outstanding at September 30, 1997     110,000        90,000       $2.66-3.66


   Granted                              (30,000)        30,000             2.44
   Exercised                                   -             -                -
   Canceled                                    -             -                -
                                       -----------    ---------    -------------
   Outstanding at September 30, 1998      80,000       120,000       $2.44-3.66
                                       ===========    =========    =============


Statement of Financial Accounting Standards No. 123
---------------------------------------------------

During 1995,  the  Financial  Accounting  Standards  Board issued SFAS 123 which
defines a fair value based method of accounting  for employee  stock options and
similar equity  instruments  and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans.  However, it also
allows an entity to continue to measure  compensation cost for those plans using
the method of accounting  prescribed by APB 25. Entities electing to continue to
use the  accounting  treatment in APB 25 must make pro forma  disclosures of net
earnings  (loss) and, if  presented,  earnings  per share,  as if the fair value
based method of accounting defined in SFAS 123 had been adopted.

The Company has elected to account for its stock-based  compensation plans under
APB 25; however,  the company has computed,  for pro forma disclosure  purposes,
the value of all options granted during the years ended September 30, 1998, 1997
and 1996, using the Black-Scholes option pricing model as prescribed by SFAS 123
using the following weighted average assumptions for grants:

                                        Year Ended September 30,
                                  -------------------------------------
                                     1998          1997         1996
                                  ----------     --------     ---------
      Risk-free interest rate         6.00%        6.00%         6.00%
      Expected dividend yield            0%           0%            0%
      Expected lives                7 years      7 years        7years
      Expected volatility             57.1%        57.1%         57.1%




                                       37
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Using the Black-Scholes  methodology,  the total value of options granted during
the years ended September 30, 1998, 1997 and 1996, was $1,458,  $1,357 and $142,
respectively,  which  would be  amortized  on a pro forma basis over the vesting
period of the options  (typically  three years).  The weighted average per share
fair value of options  granted during the years ended  September 30, 1998,  1997
and 1996, was $1.60, $1.27 and $1.77, respectively. If the Company had accounted
for its  stock-based  compensation  plans  in  accordance  with  SFAS  123,  the
Company's  net  earnings   (loss)  and  net  earnings  (loss)  per  share  would
approximate the pro forma disclosures below:

                       Year Ended           Year Ended           Year Ended
                   September 30, 1998   September 30, 1997   September 30, 1996
                   ------------------   ------------------   -------------------
                       As        Pro        As        Pro         As        Pro 
                    Reported    Forma    Reported    Forma     Reported    Forma
                    --------    -----    --------    -----     --------   ------
Net earnings (loss)   $312      ($176)   ($2,037)   ($2,284)    ($561)    ($584)

Basic net earnings
(loss) per share      0.00      (0.02)     (0.12)     (0.13)    (0.03)    (0.03)

Diluted net earnings
(loss) per share      0.00      (0.02)     (0.12)     (0.13)    (0.03)    (0.03)



The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of  future  amounts.  SFAS 123 does not apply to award  prior to the year  ended
September 30, 1996, and additional awards are anticipated in future years.

The following table summarizes  information  about stock options  outstanding at
September 30, 1998:


                 Options Outstanding                        Options Exercisable
-----------------------------------------------------    -----------------------
                                Weighted                   Number of
                  Number         Average     Weighted       shares      Weighted
 Range of       Outstanding     Remaining     Average     Exercisable    Average
 Exercise           at         Contractual   Exercise        at         Exercise
  Prices        September      Life-Years     Price       September       Price
                 30, 1998                                  30, 1998
------------    -----------    ----------    --------    -----------    --------
      $0.41        150,000           4.0       $0.41        150,000        $0.41
  1.94-2.66      2,038,525           8.9        2.25        833,396         2.20
  2.91-3.66        219,600           6.8        3.20        187,725         3.23
------------    -----------    ----------    --------    -----------    --------
 $0.41-3.66      2,408,125           8.4       $2.22      1,171,121        $2.13


At September 30, 1997 and 1996, 774,000 and 451,575 options, respectively,  were
exercisable at weighted average exercise prices of $1.68 per share and $1.32 per
share, respectively.


                                       38
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 10. Stock Repurchase Program
---------------------------------

In  January  1996 the  Company  initiated  a stock  repurchase  program of up to
1,000,000  shares of its  common  stock.  Under this  program  the  Company  has
acquired  195,200  shares  during  fiscal 1996 at an average  price of $2.77 per
share,  which  include  100,000  shares  of  common  stock  at $2.75  per  share
representing  the market  price on the date  purchased  from  Enercorp,  Inc., a
publicly-held business development company which beneficially owns approximately
11% of the  Company's  stock.  The  Chairman  and  President of the Company is a
significant  shareholder of Enercorp.  During the year ended September 30, 1997,
the Company issued 65,000  treasury  shares at $2.50 per share to Enercorp and a
consultant for acquisition  advisory work. The Loan prohibits  further purchases
under this program.


Note 11. Discontinued Operations
--------------------------------

Automotive  Accessories  Segment - On March 16, 1998, the Company  completed the
sale of a substantial  portion of the assets of Kenco, to Kenco  Products,  Inc.
("KPI").  The  principal  owner  of  KPI  is  Colfax  Group,  Inc.,  a  Delaware
corporation.  One of the principal owners of Colfax Group,  Inc. had been acting
as general  manager in charge of operating the business of Kenco.  Colfax Group,
Inc. is unrelated to the Company.

Consideration  to the Company  consisted  of $1,000 cash,  $430 of  receivables,
assumption of $1,000 of liabilities  and 2,000 shares of non-voting  convertible
preferred  stock of KPI. Under the agreement,  KPI agreed to purchase  $2,600 of
Kenco inventory during the six months following the sale.  Approximately $430 of
inventory  was unsold at September  30, 1998 which was  purchased  subsequent to
year-end.  The sale was recorded  based upon the estimated  fair market value of
the assets disposed of. The Company previously  reported Kenco as a discontinued
operation beginning with the measurement date of May 8, 1997. The 1997 estimated
pre-tax loss on disposal of $3,276 represented estimated future operating losses
of which $500 remained as an estimated  liability at September 30, 1997. For the
year ended  September 30, 1998, the Company  reported an additional  loss on the
sale of Kenco in the amount of $2,626 before income tax benefit  resulting in an
additional net loss on disposal of discontinued operations of $1,625.

Colfax and one of the principal owners of Colfax Group,  Inc. has guaranteed the
obligations  of KPI to Kenco.  At September  30, 1998 the Company has  preferred
stock  and  receivables  from the sale of  Kenco of $750 and  $2,783  (including
$1,500 recorded as other non-current assets in the accompanying balance sheets),
respectively.  The Company  has a security  interest in all of the assets of KPI
subordinate to the security interest of KPI's bank.


                                       39
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------


The summarized results for Kenco for the years ended September 30 are as follows
reflecting operating losses through the measurement date:

                                    1998             1997              1996
                                    ----            -----              ----

   Net sales                      $ 4,964          $ 8,666          $ 16,043
                                  =======          =======          ========

   Loss from operations before 
     allocated interest expense
     and income tax benefit       $     -         $(1,727)          $(4,353)
   Allocated interest expense           -            (290)             (456)
                                  -------         --------          --------
   Loss from operations before 
     income tax benefit                 -          (2,017)           (4,809)
   Income tax benefit                   -              810             1,885
                                  -------         --------          --------
   Loss from operations                 -          (1,207)           (2,924)

   Loss on disposal before 
     interest and income taxes    (2,428)          (2,771)                 -
   Allocated interest expense       (198)            (505)                 -
                                  -------         --------          --------
   Loss on disposal before 
     income tax benefit           (2,626)          (3,276)                 -
   Income tax benefit              1,001            1,311                 -
                                  -------         --------          --------
   Loss on disposal               (1,625)          (1,965)                 -
                                  -------         --------          --------
   Total loss on discontinued 
      operations                 $(1,625)         $(3,172)          $(2,924)
                                 ========         ========          ========


The net assets and  liabilities of the Automotive  Accessories  segment held for
disposition included in the accompanying balance sheet as of September 30, 1997,
are as follows:



           Current assets (liabilities):
              Accounts receivable                  $1,673
              Prepaid assets                          257
              Accounts payable                       (970)
              Accrued expenses and other             (322)
                                                   -------
               Net current assets                  $  638
                                                   =======

           Long term assets (liabilities):
              Machinery and equipment, net         $1,185
              Office equipment, net                   254
              Other assets                            183
              Long term liabilities                   (12)
                                                   -------
               Net long term assets                $1,610
                                                   =======


Agricultural  Equipment  Segment- The Company adopted a plan of disposal for the
Agriculture  Equipment  segment  effective  September  30, 1998 and  retained an
investment  banker to advise the Company on the sale,  solicit  potential buyers
for the  companies  comprising  this  segment  and assist in  negotiations.  The
Company  has  reported  the  Agriculture  Equipment  segment  as a  discontinued
operation at September  30, 1998.  The Company has provided for an estimated net
loss on disposal of $1,403 which  includes an estimated  pre-tax  operating loss
through the estimated  date of  disposition  in the amount of $800 and estimated
pre-tax loss on disposal of $1,750.  



                                       40
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

The summarized  results for the Agriculture
Equipment segment for the years ended September 30 are as follows:

                                           1998           1997            1996
                                           ----          -----            ----

   Net sales                             $  8,500       $  9,581        $ 11,026
                                         ========       ========        ========

   Loss from operations before 
     allocated interest
     expense and income tax benefits      (2,239)         (2,284)          (712)
   Allocated interest expense               (279)           (433)          (386)
                                         --------       ---------      ---------
   Loss from operations before income
     tax benefit                          (2,518)         (2,717)        (1,098)
   Income tax benefit                        959           1,087             430
   Loss allocable to minority interest       288             250              56
                                         --------       ---------      ---------
   Loss from operations                   (1,271)         (1,380)          (612)

   Loss on disposal before interest
     and income taxes                     (2,273)              -               -
   Allocated interest expense               (277)              -               -
                                         --------       ---------      ---------
   Loss on disposal before income tax 
     benefit                              (2,550)              -               -
   Income tax benefit                        972               -               -
   Loss allocable to minority interest       175               -               -
                                         --------       ---------      ---------
   Loss on disposal                       (1,403)              -               -
                                         --------       ---------      ---------
   Total loss on discontinued operations $(2,674)        $(1,380)       $  (612)
                                         ========       =========      =========


The net assets and  liabilities of the  Agriculture  Equipment  segment held for
disposition included in the accompanying balance sheet as of September 30, 1998,
are as follows:



                                                      1998             1997
                                                      ----             ----
           Current assets (liabilities):
              Accounts receivable                   $ 2,098          $ 1,742
              Inventory                               3,689            3,331
              Prepaid assets                              -              272
              Accounts payable                         (356)            (451)
              Accrued expenses and other               (314)            (527)
                                                    --------         --------
              Net current assets                    $ 5,117          $ 4,367
                                                    ========         ========

           Long term assets (liabilities):
              Property, plant and equipment, net     $3,429          $ 3,547
              Other liabilities                          (5)               -
              Long term liabilities                  (1,577)          (2,045)
                                                    --------         --------
              Net long term assets                  $ 1,847          $ 1,502
                                                    ========         ========


The Company has elected to allocate interest expense to discontinued  operations
based upon the net assets of the segment  being  disposed of at each  respective
year-end.



                                       41
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 12. Business Segment Information
-------------------------------------
                                                1998         1997        1996
                                                ----         ----        ----

Net sales by classes of similar products 
  from continuing operations
----------------------------------------
Vehicle Components                             $54,071      $42,914     $36,141
Electrical Components and GPS                    3,575        3,757       4,112
                                               -------      -------     -------
                                               $57,646      $46,671     $40,253
                                               =======      =======     =======

Earnings (loss) from continuing operations
------------------------------------------
Vehicle Components                             $10,992      $ 7,609     $ 6,831
Electrical Components and GPS                   (2,001)      (1,217)       (659)
                                               -------      -------     -------
                                               $ 8,991      $ 6,392     $ 6,172
                                               =======      =======     =======

Identifiable assets
-------------------
Vehicle Components                             $47,079      $26,017     $22,522
Electrical Components and GPS                    8,353        7,728       7,381
                                               -------      -------     -------
Total assets - continuing operations            55,432       33,745      29,903
Automotive accessories - discontinued            
  operations                                     3,963        8,699      12,986
Agricultural equipment - discontinued 
  operations                                     6,964        5,869       7,056
                                               -------      -------     -------
Total assets                                   $66,359      $48,313     $49,945
                                               =======      =======     =======


Capital expenditures
--------------------
Vehicle Components                             $ 6,446      $   420     $   532
Electrical Components and GPS                      386          246         218
                                               -------      -------     -------
Total capital expenditures - continuing 
  operations                                     6,832          666         750
Automotive accessories - discontinued            
  operations                                         -          330         358
Agricultural equipment - discontinued 
  operations                                       191          145         487
                                               -------      -------     -------
Total capital expenditures                     $ 7,023      $ 1,141     $ 1,595
                                               =======      =======     =======


Depreciation and amortization
-----------------------------
Vehicle Components                             $ 1,077      $   756     $ 1,436
Electrical Components and GPS                      329          315         239
                                               -------      -------     -------
Total depreciation and amortization - 
  continuing operations                          1,406        1,071       1,675
Automotive accessories - discontinued         
  operations                                       179          231         257
Agricultural equipment - discontinued 
  operations                                       309          304         224
                                               -------      -------     -------
Total depreciation and amortization            $ 1,894      $ 1,606     $ 2,156
                                               =======      =======     =======




                                       42
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------


Note 13. Net Sales from Continuing Operations - Geographic Region
-----------------------------------------------------------------

                                  1998             1997             1996
                                  ----             ----             ----

           Canada              $  3,377        $   2,795        $   4,570
           Sweden                 2,073            1,439            1,720
           Other                  3,236            2,121            1,541
                               --------        ---------        ---------
           Net sales-export       8,686            6,355            7,831
           United States         48,960           40,316           32,422
                               --------        ---------        ---------
           Net                 $ 57,646        $  46,671        $  40,253
                               ========        =========        =========


Note 14. Other Benefit Plans
----------------------------

The Company  maintains an Employee  Stock  Ownership  Plan (ESOP) for  non-union
employees.  The ESOP may buy shares of the Company's  stock from time to time on
the open market or directly  from the Company.  The ESOP has been  authorized to
borrow up to $1,000 from the Company or  financial  institutions  to finance its
purchases.  At  September  30,  1998  the  outstanding  balance  of the loan was
approximately  $73 which has been used to finance the purchase of  approximately
424,000 shares of common stock. The Company is required to make contributions to
the ESOP to repay the loan including interest.

The Company  sponsors  salaried  employees and union  employees  matching 401(k)
plans,  in which  eligible  employees may elect to contribute a portion of their
compensation.


Note 15. Post Retirement Benefits other than Pensions
-----------------------------------------------------

The Company provides health care and life insurance  benefits for certain of its
retired  employees  ("Post  Retirement  Plan").  These  benefits  are subject to
deductibles,  co-payment provisions and other limitations. The Company may amend
or change the Post Retirement Plan  periodically.  The cost of these benefits is
expensed as claims are paid.

Effective  October  1,  1993  the  Company  adopted  SFAS  No.  106,  Employers'
Accounting for Post Retirement  Benefits other than Pensions ("SFAS 106").  SFAS
106  requires  companies to accrue the cost of post  retirement  health care and
life  insurance  benefits  within  employees'  active service period rather than
recognizing these costs on a cash basis as had been prior practice.

The  Company  elected  to  amortize  the  Accumulated  Post  Retirement  Benefit
obligation  at  October  1,  1993  over  twenty  years  as a  component  of post
retirement benefits expense.



                                       43
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------



In September  1997,  the Company  concluded  negotiations  of a five-year  union
contract, which was ratified by union members and received final signatures.  As
a part of the  contract,  the  Company  has  reduced  its  retiree  health  care
obligations  and obtained  cost sharing  between the retired  employees  and the
Company for future cost increases.  The following table provides  information on
the post retirement plan status at September 30, 1998:


     Accumulated Post Retirement Benefit Obligation
                                                    1998          1997
                                                    ----          ----
     Retirees                                      $1,592        $1,293
     Fully eligible active participants               660           579
     Other active Plan participants                 1,333         1,094
                                                    -----         -----
                                                    3,585         2,966
     Plan assets                                        -             -
                                                    -----         -----
     Accumulated post retirement benefit
       obligation in excess of Plan assets          3,585         2,966

     Unrecognized gain                                147           687
     Unrecognized prior service cost                 (649)         (810)
     Unrecognized transition obligation            (1,720)       (1,835)
                                                    -----         -----

     Accrued post retirement benefit cost
       in the consolidated balance sheet           $1,363        $1,008
                                                   ======        ======

Post retirement benefits expense included the following components for the years
ended September 30:

                                                    1998          1997     1996
                                                    ----          ----     ----
     Service cost                                  $  92         $  74     $  65
     Interest cost                                   239           218       219
     Amortization of unrecognized net obligation     
       at transition                                 190           165       139
                                                   ------        ------    -----
     Post retirement benefits expense              $ 521         $ 457     $ 423
                                                   ======        ======    =====

The assumed health care cost trend rate used in measuring the  accumulated  post
retirement  benefit obligation (APBO) ranged between 4.5%-10% in the first year,
declining to 4.5% - 5.0% after 8 years.  The discount  rate used in  determining
the APBO was 6.75% and 7.5% for the years  ended  September  30,  1998 and 1997,
respectively.

If the  assumed  medical  costs  trends  were  increased  by 1%,  the APBO as of
September 30, 1998 would increase by $289, and the aggregate of the services and
interest cost components of the net annual post retirement benefit cost would be
increased by $30. If the assumed  medical costs trends were decreased by 1%, the
APBO as of September 30, 1998 would  decrease by $388,  and the aggregate of the
services and interest cost components of the net annual post retirement  benefit
cost would be decreased by $42.



                                       44
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------


Note 16. Acquisitions
---------------------

In April 1996,  the Company  acquired the assets of the Burda Group of Companies
located in West Linn,  Oregon,  a distributor of a commercial  chipper line, for
$20. This company was operated as Techwood Williams,  Inc. and ceased operations
in fiscal 1997.

In April 1996, the Company also acquired the assets of Neumann Manufacturing and
Engineering,  Inc.  located in Madison  Heights,  Michigan,  a  manufacturer  of
plastic  components for the  automotive  industry,  for $1,200.  This company is
being operated as Premier Plastics Technologies, Inc.

In July 1996, the Company completed the acquisition of GeoFocus, Inc. located in
Gainesville,  Florida for 150,000 shares of the Company's common stock valued at
$290.  GeoFocus develops train tracking and  cyber-farming  systems using global
positioning systems ("GPS") and geographical information systems ("GIS").

These  acquisitions  were accounted for using the purchase  method of accounting
and the results of  operations  of these  businesses  have been  included in the
consolidated results of operations of the Company from the acquisition dates.
The Techwood operating results are reported as discontinued operations.


Note 17. Sale Leaseback
-----------------------

In April 1997 the Company  sold a  manufacturing  facility  in a  sale-leaseback
transaction  for  $4,524.  Immediately  prior to the date of sale,  the  Company
identified  certain  contaminants in the soil and groundwater  which the Company
believes may have been disposed on the property by the previous  property  owner
and  other  parties.  An  environmental  escrow  fund in the  amount of $250 for
environmental  investigation and cleanup costs, if any, was established from the
proceeds of the sale under the agreement.  The Company is required to repurchase
the  property  on April 15,  2000 if the  Company  does not  obtain a no further
action letter from the state environmental  regulatory  department.  The Company
does not intend to seek a no further action letter and has advised the purchaser
that it intends to repurchase the property.

The  transaction was accounted for as a financing where the property is recorded
as  an  asset  and  continues  to  be  depreciated  and  the  capitalized  lease
obligations  are  recorded  as long  term  liabilities.  The lease has a term of
fifteen years and requires minimum annual payments of $450 with rental increases
every  two years  equal to the  increase  in the  consumer  price  index for the
Portland,  Oregon area but not greater than a 5% nor less than a 3% increase for
every two-year  period.  In April 1998,  under the terms of the  agreement,  the
Company  provided a mortgage note to the purchaser in the amount of $3,200 which
is  reported  as a note  receivable  at  September  30,  1998.  If  the  Company
repurchases the property, the note will be repaid upon the purchase.





                                       45
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 18. Quarterly Data (unaudited)
-----------------------------------

                            First     Second     Third      Fourth
         1998 (2) (3)      Quarter   Quarter    Quarter   Quarter (1)     Annual
         ------------      -------   -------    -------   -----------    -------
Continuing operations:
Net sales                  $12,698   $15,613    $14,767      $14,568     $57,646
                           =======   =======    =======      ========    =======
Gross margin               $ 3,873   $ 4,965    $ 4,818      $ 3,861     $17,517
                           =======   =======    =======      ========    =======
Operating expenses         $ 1,869   $ 2,303    $ 2,443      $ 1,911     $ 8,526
                           =======   =======    =======      ========    =======

Earnings from continuing            
    operations                 851     1,393      1,465          902       4,611
Loss from discontinued            
    operations                (157)     (306)      (336)      (3,500)    (4,299)
                           -------   -------    -------      --------    -------
Net earnings (loss)        $   694   $ 1,087    $ 1,129      $(2,598)    $   312
                           =======   =======    =======      ========    =======

Earnings (loss) per common 
    share from continuing  
    operations - basic     $  0.05   $  0.08    $  0.08      $  0.04     $  0.24
(Loss) per common share 
    from discontinued 
    operations - basic       (0.01)    (0.02)     (0.02)       (0.19)     (0.24)
                           -------   -------    -------      --------    -------
Earnings (loss) per common       
    share - basic          $ (0.04)  $  0.06    $  0.06      $ (0.15)    $  0.00
                           =======   =======    =======      ========    =======
Earnings (loss) per common
    share from continuing
    operations - diluted      0.05      0.08       0.07         0.04        0.23
(Loss) per common share from  
    discontinued operations -
    diluted                  (0.01)    (0.02)     (0.02)       (0.19)     (0.23)
                           -------   -------    -------      --------    -------
Earnings (loss) per common     
    share - diluted        $  0.04   $  0.06    $  0.05      $ (0.15)    $ 0.00
                           =======   =======    =======      ========    =======


                            First     Second     Third      Fourth
         1997 (2) (3)      Quarter   Quarter    Quarter   Quarter (1)     Annual
         ------------      -------   -------    -------   -----------    -------

Continuing operations:
Net sales                  $10,416   $11,839    $12,184      $ 12,232    $46,671
                           =======   =======    =======      ========    =======
Gross margin               $ 2,768   $ 3,004    $ 3,130      $  3,795    $12,697
                           =======   =======    =======      ========    =======
Operating expenses         $ 1,409   $ 1,498    $ 1,660      $  1,738    $ 6,305
                           =======   =======    =======      ========    =======
Earnings from continuing                               
    operations                 372       683        669           791      2,515
Loss from discontinued 
    operations                (360)     (813)    (2,761)         (618)   (4,552)
                           -------   -------    -------      --------    -------
Net earnings (loss)        $    12   $  (130)   $(2,092)     $    173   $(2,037)
                           =======   =======    =======      ========    =======

Earnings (loss) per common 
    share from continuing
    operations - basic     $  0.02   $  0.04    $  0.04      $   0.04   $   0.14
(Loss) per common share 
    from discontinued     
    operations - basic       (0.02)    (0.05)     (0.16)        (0.03)    (0.26)
                           -------   -------    -------      --------    -------
Earnings (loss) per
    common share - basic   $ (0.00)  $ (0.01)   $ (0.12)     $   0.01   $ (0.12)
                           =======   =======    =======      ========    =======
Earnings (loss) per common 
    share from continuing
    operations - diluted   $  0.02   $  0.04    $  0.04      $   0.04   $  0.14
(Loss) per common share 
    from discontinued
    operations - diluted     (0.02)    (0.05)     (0.16)        (0.03)    (0.26)
                           -------   -------    -------      --------    -------
Earnings (loss) per 
   common share - diluted  $  0.00   $ (0.01)   $ (0.12)     $   0.01   $ (0.12)
                           =======   =======    =======      ========    =======


(1)    The fourth quarter of 1998 loss from discontinued operations includes the
       effects  of  the  Company's  decision  to  dispose  of  its  Agricultural
       Equipment  segment as of September 30, 1998 and an additional loss on the
       disposal of its  previously  disposed of Automotive  Accessories  segment
       which  represented  an adjustment  to the  estimated  value of non-voting
       preferred stock that the Company received in the sale and from additional
       liabilities related to the sale.

(2)    All quarters  prior  to  the  fourth  quarter  1998 have been restated to
       reflect the Agricultural Equipment segment as a discontinued operation.

(3)    Earnings  (loss)  per  share  for  all periods have been restated for the
       provisions of SFAS 128.




                                       46
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1998, 1997, and 1996
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------


Note 19. Contingencies
----------------------

The Company and its subsidiaries are involved in various lawsuits  incidental to
their  businesses.  It is the opinion of management that the ultimate outcome of
these  actions  will not  have a  material  effect  on the  Company's  financial
position or results of operations.

The Company has identified certain contaminants in the soil and groundwater of a
manufacturing  facility  located  in  an  industrial  area,  which  the  Company
believes,  was disposed of on the  property by a previous  property  owner.  The
Company's  environmental  consulting  firm has conducted  tests to determine the
levels of  contaminants.  The  Company  has been  advised  by  counsel  that the
contamination is not a reportable condition under current statutes. In the event
that  remediation   were  required  in  the  future,   the  Company  would  seek
indemnification  from the  prior  property  owner  under  the terms of the asset
purchase  agreement.  The prior  property  owner has advised the Company that it
would dispute any liability for remediation  costs.  The Company believes it can
enforce  available  claims  against  the prior  property  owner for any costs of
investigation and remediation.








                                       47
<PAGE>





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Board of Directors of
Williams Controls, Inc.:

We  have  audited  the  accompanying  consolidated  balance  sheet  of  Williams
Controls,  Inc.  and  subsidiaries  as of September  30,  1998,  and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Williams Controls,
Inc.  and  subsidiaries  as of  September  30,  1998,  and  the results of their
operations and their cash flows  for the year  then  ended  in  conformity  with
generally accepted accounting principles.




                                                         /s/ Arthur Andersen LLP
                                                         -----------------------

                                                             ARTHUR ANDERSEN LLP

Portland, Oregon,
December 11, 1998








                                       48
<PAGE>




INDEPENDENT AUDITORS' REPORT

Board of Directors
Williams Controls, Inc.
Portland, Oregon

We have  audited  the  accompanying  consolidated  balance  sheets  of  Williams
Controls,  Inc.  and  subsidiaries  as of September  30,  1997,  and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the  years in the  two-year  period  ended  September  30,  1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Williams Controls,
Inc.  and  subsidiaries  as of  September  30,  1997,  and the  results of their
operations  and their  cash flows for each of the years in the  two-year  period
ended  September 30, 1997,  in conformity  with  generally  accepted  accounting
principles.








/s/     Horwath Gelfond Hochstadt Pangburn & Co.
------------------------------------------------

HORWATH GELFOND HOCHSTADT PANGBURN & CO.



Denver, Colorado
December 18, 1997







                                       49
<PAGE>
Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure
--------------------------------------------------------------------------------

On July 29, 1998,  the company filed a report on Form 8-K announcing a change in
accounting  firms  from  Horwath  Gelfond  Hochstadt  Pangburn  & Co.  to Arthur
Andersen LLP.

                                    Part III
                                    --------


Item 10.   Directors and Executive Officers of the Company
----------------------------------------------------------
Incorporated by reference from the Company's 1999 Proxy Statement.


Item 11.   Executive Compensation
---------------------------------
Incorporated by reference from the Company's 1999 Proxy Statement.


Item 12.   Security Ownership of Certain Beneficial Owners and Management
-------------------------------------------------------------------------
Incorporated by reference from the Company's 1999 Proxy Statement.


Item 13.   Certain Relationships and Related Transactions
---------------------------------------------------------
Incorporated by reference from the Company's 1999 Proxy Statement.


                                     Part IV
                                     -------

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K
---------------------------------------------------------------------------

1. See Exhibit Index on page 56 of this Form 10-K.

2. See Index to Financial Statements in Item 8 of this Form 10-K.

3. See Index to Schedules on page 52 of this Form 10-K.

4. Reports on Form 8-K.

     a.  Current  Report  on Form 8-K dated  June 30,  1998,  as filed  with the
         Securities  and Exchange  Commission  on July 15, 1998,  reporting  the
         Company's credit agreement amendment and Ajay agreement.

     b.  Current  Report  on Form 8-K dated  July 29,  1998,  as filed  with the
         Securities and Exchange  Commission,  announcing a change in accounting
         firms from Horwarth Gelfond Hochstadt Pangburn & Co. to Arthur Andersen
         LLP.






                                       50
<PAGE>



                                   Signatures
                                   ----------

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned thereunto duly authorized.


                                                     WILLIAMS CONTROLS, INC.

         Date:      December 22, 1998         By:  /s/ Thomas W. Itin
                                                  ------------------------------
                                                  Thomas W. Itin,
                                                  Principal Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.





         Date:      December 22, 1998         By: /s/ Thomas W. Itin
                                                  ------------------------------
                                                  Thomas W. Itin, Director


         Date:      December 22, 1998         By: /s/ Gerard A. Herlihy
                                                  ------------------------------
                                                  Gerard A. Herlihy
                                                  Principal Financial and
                                                  Principal Accounting Officer



         Date:      December 22,1998          By: 
                                                  ------------------------------
                                                  R. William Caldwell, Director


         Date:      December 22, 1998         By: /s/ H. Samuel Greenawalt
                                                  ------------------------------
                                                  H. Samuel Greenawalt, Director


         Date:      December 22, 1998         By: /s/ Timothy Itin
                                                  ------------------------------
                                                  Timothy Itin, Director





                                       51
<PAGE>



                             Williams Controls, Inc.

                               Index to Schedules





                                                                           Page





                   Report of Independent Public Accountants                  53

                   Independent Auditors' Report                              54

Schedule II        Valuation and Qualifying Accounts                         55
























All other schedules are omitted because they are not required, not applicable or
the required information is given in the Consolidated Financial Statements.





                                       52
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
Williams Controls, Inc.:

We have audited in accordance with generally  accepted auditing  standards,  the
consolidated  financial  statements  as of and for the year ended  September 30,
1998, included in Williams Controls,  Inc. and subsidiaries' Form 10-K, and have
issued our report  thereon dated  December 11, 1998.  Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
of  valuation  and  qualifying  accounts for the year ended  September  30, 1998
listed in the index to item 14 of this  Form 10-K is the  responsibility  of the
Company's  management  and is  presented  for  purposes  of  complying  with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements.  This schedule has been subjected to the auditing procedures applied
in the audit of the basic  financial  statements  and,  in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.




                                                         /s/ Arthur Andersen LLP
                                                         -----------------------
   
                                                             ARTHUR ANDERSEN LLP
Portland, Oregon,
December 11, 1998











                                       53
<PAGE>





INDEPENDENT AUDITORS' REPORT


Board of Directors
Williams Controls, Inc.
Portland, Oregon


We have audited the 1997 and 1996 consolidated  financial statements of Williams
Controls,  Inc. and  subsidiaries,  referred to in our report dated December 18,
1997 which is included  under Item 8 in this Form 10-K. In  connection  with our
audit of these  financial  statements,  we audited  the 1997 and 1996  financial
statement schedule, listed under Item 14 of this Form 10-K. In our opinion, this
financial  statement  schedule  presents fairly, in all material  respects,  the
information  stated  therein,  when  considered  in  relation  to the  financial
statements taken as a whole.




                                    /s/ Horwath Gelfond Hochstadt Pangburn & Co.
                                    --------------------------------------------

                                        HORWATH GELFOND HOCHSTADT PANGBURN & CO.




Denver, Colorado
December 18, 1997







                                       54
<PAGE>





                             Williams Controls, Inc.

                        Valuation and Qualifying Accounts

                                   Schedule II

                             (Dollars in thousands)


                                            Beginning             Ending
        Description                         balance              balance
        -----------                         ---------            -------

For Year Ended
September 30, 1998

Total reserves for doubtful accounts
  and obsolete inventory                    $  855               $ 761
                                            ======               =====


For Year Ended
September 30, 1997

Total reserves for doubtful accounts
  and obsolete inventory                    $1,064               $ 855
                                            ======               =====



For Year Ended
September 30, 1996

Total reserves for doubtful accounts
  and obsolete inventory                    $2,959               $1,064
                                            =======              ======






NOTE: Valuation and qualifying accounts were not individually significant;  and,
therefore,  additions and deductions  information  has not been provided in this
schedule.  The above  accounts  include  amounts for continued and  discontinued
operations.






                                       55
<PAGE>


                             Williams Controls, Inc.
                                  Exhibit Index
                                  -------------

  Exhibit
  Number   Description
  -------  -----------

     3.1  Certificate   of   Incorporation   of  the   Registrant   as  amended.
          (Incorporated by reference to Exhibit 3.1 to the  Registrants'  annual
          report on form 10-K for the fiscal year ended  September 30, 1995 (the
          "1995 form 10-K"))


     3.2  By-Laws of the Registrant.  (Incorporated  by reference to Exhibit 3.2
          to the Registrant's  Registration Statement on Form S-18, Registration
          No. 33- 30601-S,  as filed with the Commission on August 18, 1989 (the
          "1989 Form S-18"))


     4.1  Specimen Unit Certificate  (including Specimen  Certificate for shares
          of  Common  Stock  and  Specimen   Certificate   for  the   Warrants).
          (Incorporated by reference to Exhibits 1.1 and 1.2 to the Registrant's
          Registration Statement on Form 8-A, Commission File No. 0-18083, filed
          with the Commission on November 1, 1989)


     4.2  Form of Placement Agent's Warrant Agreement (Incorporated by reference
          to Exhibit 4.2 to the Registrant's Registration Statement on Form S-3,
          Registration  No.  333-59397 as filed with the  Commission on July 20,
          1998)
      
     10.1(a) Indemnification Agreement for Thomas W. Itin ("Itin Indemnification
          Agreement").  (Incorporated  by  reference to Exhibit 10.9 to the 1989
          Form S-18)

     10.1(b) Amendment No. 1 to Itin Indemnification Agreement. (Incorporated by
          reference to Exhibit 10.1(b) to the Registrant's Annual Report on form
          10-K  for  the  Fiscal  Year  Ended  September  30,  1993  (the  "1993
          Form-10K"))


     10.1(c ) Form of  Indemnification  Agreement  for R. William  Caldwell,  H.
          Samuel  Greenawalt  and Timothy  Itin.  (Incorporated  by reference to
          Exhibit 10.1(c) to the Registrant's 1993 Form 10-K)


     10.2(a) Credit  Agreement  dated  July 11,  1997 among  Registrant  and its
          subsidiaries and Ajay Sports, Inc. ("Ajay") and its subsidiaries,  all
          as borrowers,  and Wells Fargo Bank, National  Association,  as lender
          (the "Credit  Agreement").  (Incorporated by reference to Exhibit 10.1
          to the Registrant's Quarterly Report on Form 10-Q for the period ended
          June 30, 1997 (the "June 1997 Form 10-Q"))

     10.2(b) Promissory Notes under the Credit  Agreement:  (a) Revolving Credit
          Loans Promissory Note (b) Term Loan I Promissory Note (c) Term Loan II
          Promissory Note (d) Real Estate Loan Promissory Note (All incorporated
          by reference to Exhibit 10.2 to the Registrant's June 1997 Form 10-Q)




                                       56
<PAGE>



  Exhibit
  Number   Description
  -------  -----------

     10.2(c) Mortgage and Security  Agreement  between Aptek Williams,  Inc. and
          Wells Fargo Bank.  (Incorporated  by  reference to Exhibit 10.3 to the
          Registrant's June 1997 Form 10-Q)

     10.2(d) Patent Assignment and Security Agreements for:

               (a) Williams Controls Industries, Inc.
               (b) Hardee Williams, Inc.
               (c) Aptek Williams, Inc.
               (All   incorporated   by   reference   to  Exhibit  10.4  to  the
               Registrant's June 1997 Form 10-Q)

     10.2(e) Trademark Security Agreements for:

               (a)  Agrotec  Williams,  Inc. 
               (b) Hardee Williams, Inc.
               (All   incorporated   by   reference   to  Exhibit  10.5  to  the
               Registrant's June 1997 Form 10-Q)

     10.2(f)  Continuing  Unconditional  Guaranty  of Thomas W. Itin in favor of
          Wells Fargo Bank.  (Incorporated  by  reference to Exhibit 10.6 to the
          June 1997 Form 10-Q)

     10.2(g)  First   Amendment  to  Credit   Agreement   dated  June  30,  1998
          (Incorporated  by reference to Exhibit 10.1 to the  Registrant's  June
          30, 1998 Form 8-K)

     10.2(h) Replacement  Term Loan Promissory Note, dated June 30, 1998 made by
          Registrant  payable to Wells Fargo Bank  (Incorporated by reference to
          Exhibit 10.2 to the Registrant's June 30, 1998 Form 8-K)

     10.3(a)  Intercreditor  Agreement dated July 11, 1997 among  Registrant and
          subsidiaries,  Ajay  Sports,  Inc.  and  subsidiaries,  United  States
          National  Bank of Oregon ("US  Bank"),  Thomas W. Itin and Wells Fargo
          Bank, National Association. (Incorporated by reference to Exhibit 10.7
          to the Registrant's June 1997 Form 10-Q)

     10.3(b)  Consent,   Reaffirmation  and  Release  Agreement  with  US  Bank.
          (Incorporated  by reference to Exhibit 10.8 to the  Registrant's  June
          1997 Form 10-Q)

     10.3(c) Promissory Note of Ajay for $2,340,000 to US Bank. (Incorporated by
          reference to Exhibit 10.9 to the Registrant's June 1997 Form 10-Q)

     10.3(d)  Mortgage,  Assignment  of Rents,  Security  Agreement  and Fixture
          Filing by Aptek Williams,  Inc. in favor of US Bank.  (Incorporated by
          reference to Exhibit 10.10 to the Registrant's June 1997 Form 10-Q)

     10.3(e) Guaranty to US Bank. (Incorporated by reference to Exhibit 10.11 to
          the Registrant's June 1997 Form 10-Q)

     10.4(a) The Company's  1995 Stock Option Plan for  Non-Employee  Directors.
          (Incorporated  by  referenced  to  Exhibit  10.3  to the  Registrant's
          Quarterly Report on Form 10-Q for the period ended March 31, 1995 (the
          "March 1995 Form 10-Q")

     10.4(b) The Registrant's  1993 Stock Option Plan as amended to date. (Filed
          herewith)



                                       57
<PAGE>


  Exhibit
  Number   Description
  -------  -----------


     10.5 Williams/Ajay  Loan and Joint Venture  Implementation  Agreement dated
          May 6,  1994,  as  amended by letter  agreement  dated  April 3, 1995.
          (Incorporated by reference to Exhibit 10.4 to the  Registrant's  March
          1995 Form 10-Q)

     10.6(a)  Mortgage  and  Security  Agreement,  dated  August  31,  1988,  by
          Sparkomatic   Corporation   in  favor  of   MetLife   Capital   Credit
          Corporation.  (Incorporated  by  reference  to Exhibit  10.7(a) to the
          Registrant's 1993 Form 10-K)

     10.6(b) Mortgage Note in the principal  amount of $1,700,000,  dated August
          31, 1988,  from  Sparkomatic  Corporation  to MetLife  Capital  Credit
          Corporation.  (Incorporated  by  reference  to Exhibit  10.7(b) to the
          Registrant's 1993 Form 10-K)

     10.6(c)  Loan  Assumption,   Modification  and  Extension   Agreement  (the
          "Assumption Agreement"),  dated August 12, 1993, among Kenco Williams,
          Inc., Sparkomatic  Corporation and MetLife Capital Corporation and the
          Guaranty  given by Williams to MetLife to guaranty the  obligations of
          Kenco Williams, Inc. to MetLife thereunder. (Incorporated by reference
          to Exhibit 10.9 to the Registrant's Post-Effective Amendment No. 1, as
          filed with the  Commission  on September  23, 1993, on Form S-3 to the
          1989 Form S-18 (the "Post-Effective Amendment"))

     10.6(d) Guaranty dated as of March 31, 1994 made by the Registrant in favor
          of MetLife Capital Corporation.  (Incorporated by reference to Exhibit
          10.1 to the Registrant's  Quarterly Report on Form 10-Q for the period
          ended March 31, 1994)

     10.7(a)  Guaranty  dated as of  October  2,  1995 by  Thomas W. Itin to the
          Registrant  (the  "Itin  Guaranty").  (Incorporated  by  reference  to
          Exhibit 10.9 to the Registrant's 1995 Form 10-K)

     10.7(b) Amendment One to the Itin Guaranty.  (Incorporated  by reference to
          Exhibit 10.7(b) to the Registrant's Annual Report on Form 10-K for the
          period ended September 30, 1997 (the "1997 Form 10-K"))

     10.8 Security Agreement between Ajay and its subsidiaries,  as debtors, and
          the Registrant and its subsidiaries, as secured parties. (Incorporated
          by reference to Exhibit 10.8 to the 1997 Form 10-K)

     10.9 Agreement,  dated June 30, 1998, by and among the  Registrant and Ajay
          Sports,  Inc.  and its  subsidiaries  (Incorporated  by  reference  to
          Exhibit 10.3 to the Registrant's 6/30/98 Form 8-K)

     10.10Asset Purchase  Agreement and related Exhibits between Kenco Williams,
          Inc. and Kenco Products,  Inc.  (Incorporated  by reference to Exhibit
          10.1 to the  Registrant's  Current  Report on Form 8-K, date of report
          March 16, 1998)

     21.1 List of Subsidiaries. See Item 1 in this report

     23.1 Consent of Horwath Gelfond Hochstadt Pangburn & Co. (Filed herewith)

     23.2 Consent of Arthur Andersen LLP (Filed herewith)

     27.1 Financial Data Schedule. (Filed herewith)




                                       58
<PAGE>